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CASES 
ON  TAXATION 


BY 
JOSEPH  HENRY  BEALE 

RoYALL  Professor  of  Law  in  Harvard  Universitt 


CAMBRIDGE 

HARVARD  UNIVERSITY  PRESS 

1922 


Copyright,  1922, 
By  Joseph  Henry  Beale 


THE   CmVEBSITT    PBE89,   CAMDBIDGE,    U.S.A. 


CASES  ON  TAXATION. 


CHAPTER  I. 
TAX  ON  PERSON. 


STATE  V.  EOSS. 

SuPREJiE  Court  of  New  Jersey.     1853. 
[Reported  2Z^.  J.  L.bll.'i 

This  was  an  assessment  made  by  the  assessor  of  the  township  of 
Princeton  upon  James  Potter,  the  prosecutor,  in  the  year  1851,  for 
taxes,  and  removed  into  this  court  by  certiorari. 

James  Potter  owned  and  cultivated  a  rice  plantation  in.  Georgia, 
•which  he  considered  his  place  of  residence  or  permanent  domicil ;  he 
voted,  performed  jury  duty,  and  exercised  the  other  rights  of  a 
citizen  in  Georgia,  and  did  not  in  New  Jersey.  He  owned  a  house 
and  establishment  in  Princeton,  in  which  he  resided  with  his  family 
and  servants  for  five  or  six  months  in  each  year  during  the  sickly 
season  in  Georgia. 

He  was  assessed  in  Princeton  —  first,  for  his  lands  and  personal 
chattels  situate  there;  secondly,  for  a  poll  tax  of  fifty  cents;  and, 
thirdly,  for  $200,000  of  Camden  and  Amboy  Eailroad  bonds  owned 
by  him. 

Greex,  C.  J.  The  assessment  of  a  poll  tax  against  the  prosecutor 
is  clearly  illegal.  The  statute  enacts  that  a  poll  tax  of  fifty  cents  shall 
be  assessed  upon  every  white  male  inhabitant  of  this  state  of  the  age 
of  twenty-one  years  and  upwards.  The  term  "  inhabitant,"  as  used 
in  the  act  and  in  the  popular  acceptation  of  the  phrase,  means  some- 
thing more  than  a  person  having  a  mere  temporary  residence.  It 
imports  citizenship  and  municipal  relations ;  and  if  the  term  were  less 
unequivocal  than  it  is,  it  could  never  be  presumed,  in  the  absence  of 
the  most  explicit  enactment,  that  the  legislature  designed  to  impose  a 
poll  tax  upon  the  citizens  of  another  state.  The  idea  is  repugnant 
to  every  principle  of  sound  policy,  of  just  legislation,  and  of  in- 
ternational comitv.  "  In  imposing  a  tax,"  says  Chief  Justice  Mar- 
shall, "the  legislature  acts  upon  its  constituents."  McCulloch  v. 
The  State  of  Maryland,  4  Wheat.  316. 


687506 


2  KUXTZ    V.    DAVIDSON    COUXTT.  [cHAP.    I. 

A  personal  tax  is  the  burthen  imposed  by  government  upon  its 
own  citizens  for  the  benefits  which  that  government  affords  by  its 
protection  and  its  laws;  and  any  government  which  should  attempt 
to  impose  such  tax  upon  the  citizens  of  other  states  would  justly 
incur  the  rebuke  of  the  enlightened  sentiment  of  the  civilized  world. 
No  such  intention  can  be  imputed  to  our  legislature;  they  have  in 
express  terms  excluded  the  idea,  by  coniiuing  the  poll  tax  to  in- 
habitants of  this  state. 

A  temporary  residence,  for  the  purpose  of  business  or  pleasure, 
continued  for  days,  weeks,  or  even  months,  while  the  party's  domicil 
is  elsewhere,  and  while  he  has  no  intention  of  becoming  a  citizen 
of  this  state,  does  not,  as  has  been  already  said,  constitute  an  in- 
habitant. It  is  perfectly  immaterial,  for  this  purpose,  whether  he 
makes  his  temporarj'-  residence  in  his  o^^^l  dwelling,  with  his  domestic 
establishment  and  retinue  about  him,  or  as  a  mere  lodger  in  the 
house  of  another. 

Let  the  assessment  be  corrected.^ 


KUNTZ  V.  DAVIDSON  COUNTY. 
Supreme  Court  of  Tennessee.     1880. 

[Reported  6  Lea,  65.] 

Cooper,  J.  The  circuit  judge,  who  tried  this  case  without  a  jury, 
gave  judgment  in  favor  of  Davidson  county  against  Peter  Kuntz 
for  the  poll  taxes  assessed  against  him  for  several  years,  and  he 
appealed. 

By  the  act  of  the  17th  of  June,  1870,  ch.  26,  "  every  male  inhabit- 
ant of  the  State  between  the  ages  of  twenty-one  and  fifty  years,"  with 
certain  exceptions  not  material  to  be  noticed,  is  required  to  pay  a  poll 
tax.  The  plaintiff  in  error  was  born  in  Prussia  in  1845,  emigrated 
to  the  United  States  in  1870,  and  came  to  Davidson  county.  Ten- 
nessee,  in  1873,  and  has  since  resided  in  that  county,  having  a  wife 
and  two  children.  He  claims  to  be  a  subject  of  the  King  of  Prussia, 
having  never  withdrawn  or  intended  to  withdraw  his  allegiance.  He 
has  never  applied  for  naturalization  papers,  nor  exercised  the  elective 
franchise,  and  considers  himself  a  temporary  resident  of  the  State. 

By  the  statute,  "  every  male  inhabitant  of  the  State,"  with  certain 
exceptions,  which  do  not  apply  to  the  plaintiff  in  error,  is  liable  to 
pay  a  poll  tax.  An  inhabitant  is  one  who  has  an  actual  residence 
in  a  place;  or,  as  it  has  been  otherwise  expressed,  "one  that  resides 
in  a  place'':  Roosevelt  v.  Kellogg,  20  Johns.  211.  The  intention  of 
such  person  to  quit  his  residence  will  not,  until  consummated,  de- 
prive him  of  his  right  as  an  inhabitant :  1  Dall.  480 ;  Foster  v.  Hall, 
4  Hum.  346. 

*  Ace.  Boston  Investment  Co.  v.  Boston,  158  Mass.  461,  33  N.  E.  580 
(1893)  ;  Pendleton  v.  Com.,  110  Va.  229,  65  S.  E.  536  (1909;  On  Yuen  Hai 
Co.  V.  Ross,  8  Sawy.  384,  14  Fed.  338   (1882). 


ALASKA    PACKERS     ASSOCIATION    V.    HEDENSKOY.  «5 

No  such  intention  appears  in  this  case,  except  by  way  of  inference 
from  the  statement  that  appellant  considers  himself  a  temporary 
resident.  His  own  statements  clearly  show  that  lie  is  an  inhabitant 
within  the  meaning  of  the  law :  Strattou  v.  Brigham,  2  Sneed,  420. 
That  the  legislature  would  have  the  right  to  levy  a  poll  tax  upon  all 
of  its  inhabitants,  unless  restrained  by  some  provision  of  the  Con- 
stitution, is  clear.  The  power  of  taxation  is  an  incident  of  sov- 
ereignty, and  extends  to  persons  and  property  within  the  limits  of 
its  sovereignty.  The  right  to  tax  an  individual  results  from  the 
general  protection  afforded  to  himself  and  property,  and  depends 
on  residence,  not  citizenship.  These  are  elementary  principles, 
which  have  not  been  disputed :  Cooley  on  Tax.,  1-1,  269/ 

There  is  no  error  in  the  record,  and  the  judgment  must  be 
affirmed.2 


ALASKA  PACKERS'  ASSOCIATION  v.  HEDENSKOY. 
Circuit  Court  of  Appeals,  Ninth  Circuit.     1920. 

[Reported  267  Fed.  154.] 

Appeal  from  the  District  Court  of  the  United  States  for  the  First 
Division  of  the  Northern  District  of  California. 

Libel  by  John  Hedenskoy  against  the  Alaska  Packers'  Association. 
Decree  for  libelant,  and  respondent  appeals.  Reversed  and  re- 
manded, with  directions  to  render  a  decree  for  respondent. 

In  April,  1919,  libelant  and  certain  assignors,  residents  of  Cali- 
fornia, were  hired  by  the  defendant,  a  California  corporation,  salmon 
fisher  and  packer,  and  shipped  for  a  fishing  venture  to  Alaska  and 
return  to  San  Francisco,  agreeing  to  work  as  seamen  and  fishermen, 
beachmen  and  trapmen.  After  they  had  unloaded  cargo  at  a  point 
in  Alaska,  they  worked  as  salmon  fishermen  during  the  salmon  run, 
or  about  thirty-five  days,  and  then  loaded  canned  salmon  on  ships 
bound  for  San  Francisco,  there  to  be  distributed  to  other  places. 
Except  for  a  small  sum,  the  earnings  of  libelant  and  his  assignors 
were  payable  in  San  Francisco. 

On  May  1,  1919,  the  Legislature  of  Alaska  passed  an  act  to  impose 
a  tax  upon  male  persons  in  Alaska  for  school  purposes  (Laws  1919, 
c.  29),  "providing  means  for  its  collection."  Section  1  is  as  fol- 
lows :  "  There  is  hereby  made,  imposed  and  levied  upon  each  male 
person,  except  soldiers,  sailors  in  the  United  States  Navy  or  Revenue 
Cutter  Service,  volunteer  firemen,  paupers,  insane  persons  or  ter- 
ritorial charges,  within  the  territory  of  Alaska  or  the  waters  thereof, 
over  the  age  of  twenty-one  years  and  under  the  age  of  fifty  years, 
an  annual  tax  in  the  sum  of  five  dollars,  to  be  paid  and  collected  in 
the  manner  provided  in  the  following  sections  of  this  act,  and  to  be 
deposited  by  the  treasurer  of  the  territory  of  Alaska  in  a  separate 

*  The  court  then  found  the  tax  not  unconstitutional.  —  Ed. 
»  Ace.  Frantz'3  Appeal,  52  Vi\.  367    (1866). 


4  ALASKA    packers'   ASSOCIATION    l\    HEDENSKOY.     [CHAP.    I. 

fund  called  the  'school  fund'  and  used  for  no  other  than  school 
purposes."    Section  2  provides  for  the  method  of  appointment  of  the 
school  tax  collector.     Section  3  provides  for  advertisement  by  the 
school  tax  collector  by  notice,  setting  forth  that  the  tax  is  due  and 
payable  and  warning  persons  of  the  need  of  payment.     Section  4 
makes  the  tax  payable  between  the  first  Monday  in  the  month  of 
April  and  the  first  Monday  in  tlie  month  of  August  of  each  year: 
"  Provided,  that  all  persons  subject  to  the  tax  who  are  in  the  terri- 
tory of  Alaska  on  the  first  Monday  in  the  month  of  April  shall  pay 
said  tax  on  or  before  the  first  day  of  May  in  the  same  year,  and  all 
persons  arriving  in  the  territory  of  Alaska  after  the  first  Monday 
in  the  month  of  April  shall  pay  said  tax  within  thirty  days  after 
such  arrival:  Provided,  further,  that  all  persons  subject  to  said  tax 
shall  pay  the  same  within  ten  days  after  a  written  or  oral  demand 
by  the  said  school  tax  collector  made  within  the  period  between  the 
first  Monday  in  April  and  the  first  Monday  in  August  in  each  year.'* 
Section  8  provides  that  the  school  tax  collector  shall  demand,  and  it 
shall  be  the  duty  of  every  person  or  corporation  emplopng  labor 
in  Alaska  to  furnish  such  collector  upon  demand,  a  list  of  employees 
subject  to  the  tax  imposed,  "and  for  this  purpose  the  territorial 
treasurer  shall  furnish  to  each  school  tax  collector  suitable  blank 
forms  for  the  making  of  such  lists,  which  blank  forms  shall  be  de- 
livered by  the  school  tax  collector  to  the  employers  of  labor  afore- 
said."   The  employer  is  required  to  deduct  from  the  wages  of  each 
of  its  employees  subject  to  the  tax  the  amount  thereof.  By  section  10 
the  treasurer  of  the  territory  shall,  before  the  first  Monday  in  the 
month  of  April  in  each  year,  deliver  to  each  school  tax  collector 
blank  tax  receipts  in  book  form  with  stubs  numbered.     Section  13 
provides  that  the  tax  imposed  by  the  act  shall  be  due  and  payable 
"as  to  all  persons  within  the  territory  subject  to  said  tax  at  the 
time  of  the  passage  of  this  act,  immediately  upon  its  passage  and 
approval,  and,  as  to  all  persons  arriving  in  the  territory  after  the 
passage  of  the  act,  as  elsewhere  in  this  act  provided." 

On  August  12,  1919,  the  school  tax  collector  for  the  Bristol  Bay 
school  district,  where  the  libelant  was  during  the  time  he  was  in 
Alaska  in  1919,  by  telegram  demanded  that  the  corporation  pay  the 
tax  of  all  of  its  employees,  and  the  bookkeeper  of  the  corporation 
presented  a  statement  to  the  libelant  and  his  assignors  showing  the 
deduction  of  $5  each  for  the  tax,  but  libelant  and  his  assignors  re- 
fused to  agree  to  the  payment  with  the  deduction  included.  There- 
after, in  September,  191*9,  the  corporation,  without  the  knowledge  or 
consent  of  the  libelant  or  any  of  his  assignors,  paid  the  tax. 

Hunt,  Circ.  J.  (1)  We  agree  with  the  District  Court  in  its  view 
that  the' libelant  was  subject  to  the  tax  involved,  but  we  disagree 
with  the  decision,  which  was  that  the  necessary  steps  were  not  taken 
whereby  to  fix  liability.  Libelant  was  not  a  mere  sojourner,  bound 
through  Alaska  for  another  place.  He  agreed  to  perform  work 
within  the  territory  during  the  fishing  season  of  1919.  The  hours, 
compensation,  and  the  nature  of  the  work  to  be  done  are  all  set 
forth  in  detail  in  the  contract,  which  also  requires  that  libelant 


ALASKA    PACKERS      ASSOCIATIOX    V.    HEDEXSKOY.  O 

should  be  given  a  statement  of  the  Alaska  account  before  the  vessel 
sailed  for  her  home  port.  The  enterprise  became  one  which  called 
for  substantial  employment  within  Alaska,  and  we  think  it  is  im- 
material that  the  season  for  actual  salmon  fishing  was  only  about 
thirty-five  days.  It  is  to  be  noted,  however,  that  the  shipping  articles 
were  signed  in  San  Francisco  in  the  beginning  of  April,  1919,  and 
that  the  men  arrived  in  Alaska  in  May  and  June,  and  left  Alaska, 
bound  for  San  Francisco,  about  the  middle  of  August,  reaching  San 
Francisco  the  latter  part  of  August.  The  period  of  employment, 
therefore,  extended  over  some  five  months,  three  months  of  which 
were  in  Alaska. 

In  Kelley  v.  Ehoads,  188  U.  S.  1,  23  Sup.  Ct.  259,  47  L.  Ed.  359, 
the  officials  of  the  territory  of  Wyoming  endeavored  to  levy  a  tax 
upon  a  band  of  sheep  which  were  being  driven  across  Wyoming  and 
into  Nebraska.  The  question  turned  upon  the  purpose  for  which  the 
sheep  were  driven  into  Wyoming.  The  court  recognized  that,  if  the 
purpose  of  bringing  the  sheep  into  the  state  was  for  grazing,  then 
they  could  be  assessed;  but,  if  the  purpose  was  only  to  drive  them 
through  the  state  to  a  market,  they  would  be  exempt  as  a  subject  of 
interstate  commerce,  although  they  might  incidentally  have  sup- 
ported themselves  in  grazing  while  actually  in  transit.  In  Fennell  v. 
Pauley,  112  Iowa,  94,  83  N.  W.  799,  a  resident  of  Missouri  drove 
a  band  of  cattle  for  feeding  purposes  into  Iowa,  and  kept  them  in 
Iowa  for  six  months,  and  then  took  them  back  to  Missouri.  The 
Supreme  Court  of  Iowa  held  that  the  cattle  could  be  properly 
assessed  within  Iowa  because  they  were  within  the  state  to  be  fed 
therein,  and  not  merely  to  remain  there  temporarily  to  be  trans- 
ported elsewhere.  In  Grigsby  Construction  Co.  v.  Freeman,  108 
La.  435,  32  South.  399,  58  L.  R.  A.  349,  a  resident  of  Texas  owned 
certain  personal  property,  which  was  taken  to  Louisiana  to  be  used 
in  certain  railroad  grading.  Upon  the  question  whether  the  im- 
position of  a  tax  within  Louisiana  was  valid,  the  Supreme  Court 
of  the  state  cited  Brown  v.  Houston,  114  U.  S.  633,  5  Sup.  Ct.  1091, 
29  L.  Ed.  257,  and  held  that  the  determinative  factor  was  whether 
or  not  the  property  was  within  the  state  of  Louisiana  for  use  likely 
to  be  of  some  duration  as  distinguished  from  transit,  and  that  the 
matter  was  not  to  be  disposed  of  by  the  fact  that  the  o\rner  of  the 
property  intended  at  a  future  time  to  remove  the  property.  The  doc- 
trine recognized  is  that,  if  the  main  purpose  of  the  presence  of  the 
personal  property  is  to  devote  it  to  a  use  within  the  state  to  which 
it  has  been  removed,  then  it  has  a  taxable  situs  within  the  state.  In 
Eoff  V.  Kennefick,  Hammond  Co.,  96  Ark.,  138,  96  S.  W.  986,  7  L.  R. 
A.  (N.  S.)  704,  117  Am.  St.  Rep.  79,  10  Ann.  Cas.  63,  a  local 
assessor  assessed  certain  horses  and  implements  which  had  been 
brought  into  the  state  by  a  construction  company  in  carrying  out  a 
railroad  contract.  The  owners  of  the  property  lived  in  ^lissouri. 
The  Supreme  Court  of  the  state  held  that  under  the  familiar  rule 
recognized  bv  the  Supreme  Court  of  the  United  States  in  Pullman 
Car  Co.  V.  Pennsylvania,  etc.,  141  U.  S.  18.  11  Sup.  Ct.  876.  35  L. 
Ed.  613,  and  other  cases,  personal  property  could  be  separated  from 


6  AT.ART^A    PACKEKS'  ASSOCIATION   V.    HEDENSKOY.        [cHAP.    I. 

its  owner  for  taxation  purposes  and  that  the  property  was  not  in 
transit,  but  was  in  Arkansas  chiefly  for  use  and  profit. 

(2)  It  is  well  established  that  taxation  of  personal  property  which 
may  be  temporarily  witliin  a  state,  but  used  therein  for  profit,  is  law- 
ful, although  the  owner  has  his  domicile  in  another  state;  and  by 
like  reasoning  we  hold  that  one  who  is  in  a  territory  for  the  purpose 
of  carrying  on  a  business  during  the  season  when  such  business  is 
properly  and  usually  carried  on,  is  subject  to  tax  within  the  district 
where  the  business  is  carried  on,  and  the  assessment  is  not  invalid  by 
reason  of  the  fact  that  the  permanent  residence  of  the  person  assessed 
is  not  within  the  jurisdiction  where  such  tax  is  levied.  In  the 
Chinese  Tax  Cases  (C.  C.)  14  Fed.  338,  it  was  held  that  some 
Chinese  laborers,  who  were  taken  into  Oregon  to  engage  in  labor 
upon  a  railroad,  were  not  residents  within  the  district  wherein  they 
labored. 

(3)  There  remains  the  question  whether  or  not  proper  steps  were 
taken  to  enforce  pa}TnGnt  against  the  libelant  for  the  year  1919,  so 
that  the  appellant  corporation  is  legally  bound.  By  section  4  of  the 
act,  all  persons  subject  to  the  tax  shall  pay  it  within  ten  days  after 
written  or  oral  demand  by  the  collector  made  between  the  first  Mon- 
day in  April  and  the  first  Monday  in  August  of  each  year.  Inasmuch 
as  the  liability  to  pay  the  tax  was  fixed  by  the  act,  we  think  the  de- 
mand by  telegram  on  August  12  was  a  sufficient  compliance  with 
the  statute  in  order  to  establish  delinquency,  and  that  upon  failure 
to  pay  the  delinquents  became  subject  to  the  penalties  provided  by 
section  5  of  the  act,  which  makes  all  taxes  delinquent  if  not  paid 
within  the  time  prescribed  in  section  4,  or  within  ten  days  after  de- 
mand by  the  tax  collector  as  prescribed  in  the  act,  and  provides  that 
each  person  delinquent  shall  be  subject  to  a  penalty.  It  would  be 
most  technical  to  hold  that,  because  the  collector  failed  to  furnish  the 
blank  forms  and  receipt  books  required  by  sections  8  and  10  of  the  act, 
the  libelant  should  escape  Liability.  The  blanks  were  not  delivered 
to  the  collector  by  the  treasurer  of  the  territory;  but  it  appears  that 
before  the  statements  were  given  to  the  men  the  collector  looked 
through  the  books  of  the  corporation,  which  showed  the  names  of 
the  employees,  and  that  when  the  statements  of  account  were  given 
to  the  men  by  the  corporation,  such  statements  disclosed  a  charge 
of  $5  for  the  tax  in  each  instance.  In  this  way  the  tax  collector 
gained  the  same  information  that  would  have  been  furnished  to 
him,  if  the  blanks  had  been  available  and  filled  out.  Nothing  in 
Callaghan  v.  Marshall,  210  Fed.  230,  127  C.  C.  A.  48,  calls  for  a 
different  view. 

Our  judgment  being  that  the  libelant  and  his  assignors  became 
liable  to  pay  the  tax,  and  that  the  proper  steps  to  enforce  payment 
for  1919  were  taken,  the  decree  will  be  reversed,  and  the  cause  re- 
manded, with  directions  to  enter  a  decree  in  favor  of  the  association. 

Reversed.^ 


*  Certiorari   denied  by  the   Supreme    Court   of   the   United    States.      254 
U.  S.  652. 


THE    DELAWARE    RAILROAD    TAX. 


THE  DELAWARE  RAILROAD  TAX. 
Supreme  Court  of  the  United  States.     1874. 

[Reported  18  Wall.  206.] 

Appeal  from  the  Circuit  Court  of  the  United  States  for  the  Dis- 
trict of  Delaware ;  in  which  court  William  Minot  filed  a  bill  against 
the  Philadelphia,  Wilmington  and  Baltimore  Railroad  Company  and 
the  State  Treasurer  and  Collector  of  State  Taxes  of  Delaware  to  en- 
join the  collection  of  certain  taxes. 

The  railroad  company  was  incorporated  by  Delaware,  as  well  as  by 
Pennsylvania  and  Maryland.  The  State  imposed  a  tax  of  three  per 
cent  on  its  net  earnings  and  of  one-fourth  of  one  per  cent  on  the 
actual  cash  value  of  its  shares.  The  Circuit  Court  sustained  the 
legality  of  these  taxes,  and  the  plaintiff  appealed.^ 

Field,  J.  We  proceed,  therefore,  to  the  second  objection  to  the  act, 
that  it  imposes  taxes  upon  property  beyond  the  jurisdiction  of  the 
State.  If  such  be  the  fact  the  tax  to  that  extent  is  invalid,  for  the 
power  of  taxation  of  every  State  is  necessarily  confined  to  subjects 
within  its  jurisdiction.  The  objection  of  the  appellant  is  directed 
principally  to  the  tax  imposed  by  the  fourth  section  of  the  act,  and 
assumes  that  the  tax  must  be  considered  as  laid  upon  the  shares  as 
representing  the  separate  property  of  the  individual  stockholders,  or 
as  representing  the  property  of  the  corporation.  And  the  argument 
is  that  if  the  tax  be  laid  upon  the  shares  of  the  stockholders  it  falls 
upon  property  out  of  the  State,  because  nearly  all  the  stockholders, 
at  least  a  much  greater  number  than  the  ratio  of  the  mileage  of  the 
road  in  Delaware  to  its  entire  length,  are  citizens  and  residents  of 
other  States;  and  if  the  tax  be  laid  upon  the  shares  as  representing 
the  property  of  the  corporation,  it  falls  upon  property  out  of  the 
State,  because  the  ratio  of  the  mileage  of  the  road  in  Delaware  to  its 
entire  length  is  not  that  which  the  capital  invested  by  the  company 
in  that  State  bears  to  the  entire  capital  of  the  company,  or  that  which 
the  value  of  the  property  of  the  company  there  situated  bears  to  the 
value  of  its  entire  property. 

If  the  assumption  of  the  appellant  were  correct,  there  would  be 
difficulty  in  sustaining  the  validity  of  the  tax. 

In  the  first  place,  the  share  of  a  stockholder  is,  in  one  aspect,  some- 
thing different  from  the  capital  stock  of  the  company;  the  latter 
only  is  the  property  of  the  corporation ;  the  former  is  the  individual 
interest  of  the  stockholder,  constituting  his  right  to  a  proportional 
part  of  the  dividends  when  declared,  and  to  a  proportional  part  of  the 
effects  of  the  corporation  when  dissolved,  after  payment  of  its  debts. 
Regarded  in  that  aspect  it  is  an  interest  or  right  which  accompanies 
the  person  of  the  owner,  having  no  locality  independent  of  his  dom- 
icil.     But  whether,  when  thus  regarded,  it  can  be  treated  as  so  far 

*  This  short  statement  is  substituted  for  that  of  the  reporter.  Only  so 
much  of  the  cases  as  involves  the  jurisdiction  to  tax  is  given. —  Ed. 


8  THE   DELAWARE   KAILKOAD    TAX.  [ciIAP.    I. 

severable  from  tlie  property  to  which  it  relates  as  to  be  taxable  inde- 
pendent of  tlie  locality  of  the  latter  is  a  question  not  necessary  now  to 
decide.  The  argument  of  the  appellant  assumes  that  it  is  thus 
severable. 

In  anv  aspect,  if  provision  for  the  taxation  of  the  shares  at  the  local- 
ity of  the  company  be  made  in  its  charter,  their  taxability  at  such 
locality  is  annexed  "as  an  incident  to  the  shares,  and  it  does  not  matter 
where  the  domicil  of  the  owner  may  be.  The  tax  may  then  be  en- 
forced through  the  corporation  by  requiring  it  to  withhold  the  amount 
from  the  dividends  payable  thereon.  The  shares  in  the  national 
banks  created  under  the  act  of  Congress  of  June  3d,  1864,  are  made 
taxable  at  the  place  where  the  bank  is  located,  and  not  elsewhere; 
and  in  the  case  of  The  National  Bank  v.  Commonwealth,  reported  in 
the  9th  of  Wallace,  a  law  of  Kentucky  requiring  the  banks  in  that 
State  to  pay  the  tax  laid  on  tlieir  shares  was  sustained  by  this  court. 
But  in  the  act  of  Delaware  under  which  the  corporation  defendant 
was  formed,  there  is  no  such  provision  for  the  taxation  of  the  shares 
of  the  individual  stockholders. 

In  the  second  place,  assuming  that  the  tax  is  upon  the  property  of 
the  corporation,  if  the  ratio  of  the  value  of  the  property  in  Delaware 
to  the  value  of  the  whole  property  of  the  company  be  less  than  that 
which  the  length  of  the  road  in  Delaware  bears  to  its  entire  length, 
and  such  is  achnitted  to  be  the  fact,  a  tax  imposed  upon  the  property 
in  Delaware  according  to  the  ratio  of  the  length  of  its  road  to  the 
length  of  the  whole  road  must  necessarily  fall  upon  property  out  of 
the  State.  The  length  of  the  whole  road  is  in  round  numbers  one 
hundred  miles ;  the  length  in  Delaware  is  twenty-four  miles.  The  tax 
upon  the  property  estimated  according  to  this  ratio  would  be  in  Dela- 
■^are  -^  or  -g^  of  the  amount  of  the  tax  upon  the  whole  property. 
But  the  value  of  the  property  in  Delaware  is  not  ^  of  the  value  of 
the  whole  property,  but  much  less  than  this  proportion  would  require. 

We  repeat,  therefore,  that  upon  the  assumption  made  by  the  apel- 
lant  there  would  be  difficulty  in  sustaining  the  tax. 

We  do  not  think,  however,  the  assumption  is  correct.  As  we  con- 
strue the  language  of  the  fourth  section,  the  tax  is  neither  imposed 
upon  the  shares  of  the  individual  stockholders  nor  upon  the  property 
of  the  corporation,  but  is  a  tax  upon  the  corporation  itself,  measured 
by  a  percentage  upon  the  cash  value  of  a  certain  proportional  part  of 
the  shares  of  its  capital  stock ;  a  rule  which,  though  an  arbitrary  one, 
is  approximately  just,  at  any  rate  is  one  which  the  legislature  of  Del- 
aware was  at  liberty  to  adopt. 

The  State  may  impose  taxes  upon  the  corporation  as  an  entity  exist- 
ing under  its  laws,  as  well  as  upon  the  capital  stock  of  the  corporation 
or  its  separate  corporate  property.  And  the  manner  in  which  its  value 
shall  be  assessed  and  the  rate  of  taxation,  however  arbitrary  or  capri- 
cious, are  mere  matters  of  legislative  discretion.  It  is  not  for  us  to 
suggest  in  any  case  that  a  more  equitable  mode  of  assessment  or  rate 
of  taxation  might  be  adopted  than  the  one  prescribed  by  the  legisla- 
ture of  the  State ;  our  only  concern  is  with  the  validity  of  the  tax ; 
all  else  lies  beyond  the  domain  of  our  jurisdiction. 


THE    DELAWARE    KAILEOAD    TAX,  9 

Nothing  was  urged  in  the  argument  specially  against  the  tax  upon 
the  corporation  under  the  first  section  of  the  act,  which  is  determined 
by  the  net  earningsr  or  income  of  the  company.  Whatever  objectionB 
could  be  presented  are  answered  by  the  observations  already  made 
upon  the  tax  under  the  other  section.  A  tax  upon  a  corporation  may 
be  proportioned  to  the  income  received  as  well  as  to  the  value  of  the 
franchise  granted  or  the  property  possessed. 

From  the  views  expressed,  it  follows  that  the  judgment  of  the 
Circuit  Court  must  be 

Affirmed,  ^nd  it  is  so  oedeeed. 


10  MCKEEN    V.    COUNTY    OF    NOKTHAMPTON.  [ciIAP.    I. 


<r  McKEEN   V.   COUNTY  OF   NORTHAMPTON. 

Supreme  Court  of  Pennsylvania.     18G5. 
[Reported  49  Pennsylvania,  519.] 

Agnew,  J.  James  McKeen  is  the  owner  of  four  hundred  and  sev- 
euty-two  shares  of  the  capital  stock  of  a  manufacturing  company, 
incorporated  under  the  laws  of  New  Jersey,  doing  business  and  hold- 
ing its  property  in  Warren  county  in  that  State.  McKeen  himself  is 
a  resident  of  Easton,  Pennsylvania,  and  the  question  is,  whether  his 
stock  is  taxable  here  for  State  and  county  purposes. 

The  taxing  power  rests  upon  the  reciprocal  duties  of  protection  and 
support  between  the  State  and  the  citizen,  and  the  exclusive  sover- 
eignty and  jurisdiction  of  tlie  State  over  the  persons  and  property 
within  its  territory.  In  McCullough  v.  The  State  of  Maryland,  4 
Wheat.  487,  Marsliall,  C.  J.,  remarks  of  the  taxing  power:  "It  is 
obvious  that  it  is  an  incident  of  sovereignty,  and  is  co-extensive 
with  that  to  which  it  is  incident.  All  subjects  over  which  the 
sovereign  power  of  a  State  extends  are  objects  of  taxation  ;  but  those 
over  which  it  does  not  extend  are,  upon  the  soundest  principles,  exempt 
from  taxation."  Story,  in  his  Conflict  of  Laws,  §  19,  says:  "The 
sovereign  has  power  and  authority  over  his  subjects,  and  over  the 
property  which  they  possess  within  his  dominions."  See  Id.  §§  18 
and  20. 

The  defendant  below  being  a  citizen  of  this  State,  it  is  clear  he  is 
sul)ject  personally  to  its  power  to  tax,  and  that  all  liis  property  accom- 
panying his  person,  or  falling  legitimately  within  the  territorial  juris- 
diction of  the  State,  is  equally  within  this  authority.  The  interest 
which  an  owner  of  shares  has  in  the  stock  of  a  corporation  is  personal. 
Whithersoever  he  goes  it  accompanies  him,  and  when  he  dies  his  domi- 
cile governs  its  succession.  It  goes  to  his  executor  or  administrator, 
and  not  to  the  heirs,  and  is  carried  into  the  inventory  of  his  personal 
effects.  When  it  is  argued,  therefore,  that  the  foundry,  machine-shop, 
and  other  estate  of  the  corporation,  being  within  the  State  of  New 
Jersey,  are  subject  wholly  to  the  same  exclusive  State  jurisdiction  there 
wliich  we  claim  for  this  State  over  property  within  its  territory,  another 
ownership  is  stated  and  a  new  issue  introduced.  But  to  that  property 
the  defendant  below  has  no  title  ;  his  title  being  in  the  shares  he  holds, 
and  not  in  the  property  of  the  corporation.  No  execution  against  him 
there  would  sell  a  spark  of  right  to  it,  nor  would  his  heirs  at  law  suc- 
ceed to  anj'  estate  in  it.  Unquestionably  it  may  be  taxed  as  the  prop« 
erty  of  the  corporation  in  New  Jersey ;  but  the  ownership  there  is  that 
of  the  corporation,  the  legal  entity,  and  not  of  the  natural  persons  who 
own  the  shares  of  its  stock. 

The  stock  of  individuals  may  be  controlled,  to  a  certain  extent,  in 
New  Jersey  to  make  it  liable  to  the  claims  of  their  domestic  creditors, 
or  legatees  and  next  of  kin.  Even  ancillary  administration  may  be 
granted  there  to  preserve  the  estate  for  resident  claimants.  But  even 
then  the  residue  of  McKeen's  stock  would  be  remitted  to  the  executors 


I 


MCKERX    r.   COU^•XY  of  >'OUTIIAMrTOX.  11 

or  fldministrators  of  the  domicile  in  Pennsylvania,  and  the  right  of 
succession  would  be  governed  by  our  laws  ;  thus  proviug  that  though 
local  authority  may  attach  to  the  stock  for  special  purposes,  its  owner- 
ship has  its  legal  situs  at  the  domicile  of  the  owner.  There  is  abun- 
dant authority  for  this :  Mothland  «\  Wireman,  administrator  of 
Thornburg,  3  Penn.  185;  Miller's  Estate,  3  Rawle,  312;  Stokely's  Es- 
tate, 7  Harris,  470  ;  Dent's  Appeal,  10  Id.  514. 

Another  feature  is  noticeable.  In  the  exercise  of  the  authority  to 
tax,  the  proceeding  is  personal  only.  Though  different  kinds  of  prop- 
erty are  specified  as  the  subjects  of  taxation,  it  is  not  as  a  proceeding 
iti  rem,  but  only  as  allbrding  the  means  and  measure  of  taxation.  The 
tax  is  assessed  personally,  and  the  means  of  enforcement  is  a  warrant 
against  the  person  of  the  owner,  and  any  property  he  has  whether  taxed 
or  not:  Act  15th  April,  1834,  §§  20,  21 ;  Purd.  1861,  pp.  938-939. 

We  have  authorities  directly  upon  this  question  deciding  the  prin- 
ciple, though  upon  a  different  species  of  tax  —  the  collateral  inheritance 
tax  :  In  re  Short's  Estate,  11  Harris,  G3.  The  decedent,  a  resident  of 
Philadelphia,  owned  half  a  million  of  dollars  in  stocks  and  corporations 
of  other  States,  and  bonds  of  the  State  of  Kentucky,  and  a  bank  de- 
posit in  New  York  ;  all  were  held  to  be  subject  to  the  collateral  inher- 
itance tax  here.  Gibson,  C.  J.,  opens  his  opinion  by  stating:  "  That 
Mr.  Short's  property  out  of  the  State  subjected  him  to  personal  liability 
for  taxes  assessed  on  it  here  in  hi^  lifetime,  is  not  to  be  doubted.  The 
general  rule  is,  that  the  situs  of  personal  property  follows  the  domicile 
of  the  owner  of  it,  insomuch  that  even  a  creditor  cannot  reach  it  in  a 
foreign  country,  except  by  attachment  or  some  otlier  process  provided 
by  the  local  law;  certainly  not  by  a  personal  action,  without  appear- 
ance or  something  equivalent  to  it."  To  the  same  effect  is  the  case  of 
Hood's  Estate,  9  Harris,  106  ;  the  difference  of  domicile  merely  lead- 
ing to  an  opposite  result. 

The  court  below  was  right  in  entering  judgment  for  the  whole  amount 
of  the  taxes,  State  and  county.  The  question  of  liability  for  county 
taxes  is  disposed  of  in  the  opinion  just  read  in  the  case  of  Whitesell  r. 
Northampton  County.  Judgment  affirmed.^ 

1  Ace.  Seward  v.  Rising  Sun,  79  Ind.  351 ;  Dwight  v.  Boston,  12  All.  316  :  Hall 
V.  Fayetteville,  115  N.  C.  281,  20  S.  E.  373  ;  Bradley  v.  Bander,  36  Oh.  S.  28  ; 
Dyer  v.  Osburn,  1 1  R.  I.  321 . 

"  In  the  absence  of  constitutiooal  restriction.s,  the  citizen  may  be  taxed  in  the  dis- 
cretion of  the  legislature,  either  personally,  by  way  of  poll-ta.x,  or  upon  the  value  of 
his  property,  wherever  situate  or  however  elsewhere  taxed,  to  such  extent  as  the  public 
exigencies  may  require.  .  .  .  The  very  nature  of  choses  in  action  is  that  they  have  no 
locality,  but  follow  the  person  of  the  owner.  As  they  sometimes  virtually  represent 
property  that  is  situated  elsewhere,  and  it  maybe  taxed  elsewhere,  there  is  in  some  cases 
a  double  taxation  ;  but  this  results  from  our  peculiar  situation,  and  although  undoubt- 
edly to  be  avoided,  and  not  to  be  assumed  as  intended  without  plain  enactments  ad- 
mitting of  no  other  reasonable  interpretation,  yet  so  far  as  it  is  produced  by  that 
conflict  of  laws  which  arises  from  a  variety  of  sovereignties  so  intimately  connected  aa 
ours,  it  frequently  cannot  be  avoided,  and  at  all  events  has  not  been  attempted  to  be 
prevented,  by  either  the  national  or  the  State  constitutions."  Elmer,  J.,  in  State  v. 
Bentley,  23  N.  J.  L.  532  (1852).  —  Ed. 


12  UXIOX    TRANSIT    CO.    V.    KEXTFCKY.  [CHAP. 


UNION  TRANSIT  CO.  v.  KENTUCKY. 

Supreme  Court  of  the  United  States.     1905. 

[Bepoited  199  U.  S.  194.] 

Brown,  J .  In  this  case  the  question  is  direeth'  presented  whether 
a  corporation  organized  under  the  laws  of  Kentucky  is  subject  to  taxa- 
tion upon  its  tangible  personal  propert\',  permanently  located  in  other 
States,  and  employed  there  in  the  prosecution  of  its  business.  Such 
taxation  is  charged  to  be  a  violation  of  the  due  process  of  law  clause  of 
the  Fourteenth  Amendment. 

Section  4020  of  the  Kentuck}'  statutes,  under  which  this  assessment 
was  made,  provides  that  "  All  real  and  peisonal  estate  within  this 
State,  and  all  personal  estate  of  persons  residing  in  this  State,  and  of  all 
corporations  organized  under  the  laws  of  this  State,  whether  the  prop- 
ertv  be  in  or  out  of  this  State,  .  .  .  shall  be  subject  to  taxation,  unless 
the  same  be  exempt  from  taxation  by  the  Constitution,  and  shall  be 
assessed  at  its  fair  cash  value,  estimated  at  the  price  it  would  bring  at 
a  fair  voluntary  sale." 

That  the  property  taxed  is  within  this  description  is  beyond  contro- 
versy. The  constitutionality  of  the  section  was  attacked  not  only  upon 
the  ground  that  it  denied  to  the  Transit  Corapan}-  due  process  of  law, 
but  also  the  equal  protection  of  the  laws,  in  the  fact  that  railroad  com- 
panies were  only  taxed  upon  the  value  of  their  rolling  stock  used  within 
the  State  which  was  determined  by  the  proportion  which  the  number  of 
miles  of  the  railroad  in  the  State  bears  to  the  whole  number  of  miles 
operated  by  the  company. 

The  power  of  taxation,  indispensable  to  the  existence  of  every  civil- 
ized government,  is  exercised  upon  the  assumption  of  an  equivalent 
rendered  to  the  taxpayer  in  the  protection  of  his  person  and  propert}',  in 
adding  to  the  value  of  such  property,  or  in  the  creation  and  maintenance 
of  public  conveniences  in  which  he  shares,  such,  for  instance,  as  roads, 
bridges,  sidewalks,  pavements,  and  schools  for  the  education  of  his  chil- 
dren. If  the  taxing  power  be  in  no  position  to  render  these  services,  or 
otherwise  to  benefit  the  person  or  property  taxed,  and  such  property  be 
wholly  within  the  taxing  power  of  another  State,  to  which  it  may  be  said 
to  owe  an  allegiance  and  to  which  it  looks  for  protection,  the  taxation 
of  such  property  within  the  domicil  of  the  owner  partakes  rather  of  the 
nature  of  an  extortion  than  a  tax,  and  has  been  repeatedly  held  by  this 
court  to  be  beyond  the  power  of  the  legislature  and  a  taking  of  property 
without  due  process  of  law.  Railroad  Company  v.  Jackson,  7  Wall. 
262;  State  Tax  on  Foreign-held  Bonds,  1.5  Wall.  300;  Tappan  v. 
Merchants'  National  Bank,  19  Wall.  490,  499;  Delaware  &c.  R.  R. 
Co.  V.  Pennsylvania,  198  U.  S.  341,  358.  In  Chicago  &c.  R.  R.  Co.  v, 
Chicago,  166  U.  S.  226,  it  was  held,  after  full  consideration,  that  the 
taking  of  private  property  without  compensation  was  a  denial  of  due 


CITAP.  L]  union   TKANSIT   CO.    C    KEXTL'CKV.  lo 

process  within  the  Fourteenth  Auiendinent.  See  also  Davidson?'.  New 
Orleans,  96  U.  S.  97,  102;  Missouri  Pacific  Railway  v.  Nebraska,  164 
U.  S.  403,  417  ;  Mount  Hope  Cemetery  o.  Boston,  158  Mass.  509,  .019. 

Most  modern  legislation  upon  this  subject  has  l)een  directed  (1)  to 
the  requirement  that  every  citizen  shall  ilisclose  the  amount  of  his  prop- 
erty subject  to  taxation  and  shall  contribute  in  proportion  to  such 
amount ;  and  (2)  to  the  voidance  of  double  taxation.  As  said  by  Adam 
Smith  in  his  ''  Wealth  of  Nations,"  Book  V.,  Ch.  2,  Pt.  2,  "  the  sub- 
jects of  every  State  ought  to  contribute  towanls  the  support  of  the  gov- 
ernment as  nearly  as  possible  in  proportion  to  their  respective  abilities  : 
that  is,  in  proportion  to  the  revenue  which  the}-  respectively  enjoy 
under  the  protection  of  the  State.  The  expense  of  government  to  the 
individuals  of  a  great  nation  is  like  tlie  expense  of  management  to  tiie 
joint  tenants  of  a  great  estate,  who  are  all  obliged  to  contribute  in  pro- 
portion to  their  respective  interest  in  the  estate.  In  the  observation 
or  neglect  of  this  maxim  consists  what  is  called  equality  or  inequality 
of  taxation." 

But  notwithstanding  the  rule  of  uniformity  lying  at  the  basis  of 
ever}'  just  system  of  taxation,  there  are  doubtless  many  individual 
cases  where  the  weight  of  a  tax  falls  unequally  upon  the  owners  of 
the  property  taxed.  This  is  almost  unavoidable  under  every  system 
of  direct  taxation.  But  the  tax  is  not  rendered  illegal  by  such  discrim- 
ination. Thus  every  citizen  is  bound  to  pay  his  proportion  of  a 
school  tax,  though  he  have  no  children;  of  a  police  tax,  though  he  have 
no  buildings  or  personal  property  to  be  guarded  ;  or  of  a  road  tax, 
though  he  never  use  the  road.  In  other  words  a  general  tax  cannot  be 
dissected  to  show  that,  as  to  certain  constituent  parts,  tiie  taxpayer  re- 
ceives no  benefit.  P^ven  in  case  of  special  assessments  imposed  for  the 
improvement  of  property  within  certain  limits,  the  fact  that  it  is  ex- 
tremely doubtful  whether  a  particular  lot  can  receive  any  benefit  from 
the  improvement  does  not  invalidate  the  tax  with  respect  to  such  lot. 
Kelly  V.  Pittsburgh  104  U.  S.  78 ;  Amosbury  Nail  Factory  Co.  v. 
Weed,  17  Mass.  53;  Thomas  r.  Gay,  169  U.  S.  264;  Louisville  &c. 
R.  R.  Co.  V.  Barber  Asphalt  Co.  197  U.  S.  430.  Subject  to  tiiese  in- 
dividual exceptions,  the  rule  is  that  in  classifying  property  for  taxation 
some  benefit  to  the  property  taxed  is  a  controlling  consideration,  and  a 
plain  abuse  of  this  power  will  sometimes  justify  a  judicial  interference. 
Norwood  I'.  Baker,  172  U.  S.  269.  It  is  often  said  protection  and 
payment  of  taxes  are  correlative  obligations. 

It  is  also  essential  to  the  validity  of  a  tax  that  the  property  shall  be 
within  the  territorial  jurisdiction  of  the  taxing  power.  Not  only  is 
the  operation  of  vState  laws  limited  to  persons  and  pro[)erty  within  the 
boundaries  of  the  State,  but  property  which  is  wholly  and  exclusively 
within  the  jurisdiction  of  another  State,  receives  none  of  the  protec- 
tion for  which  the  tax  is  supposed  to  be  the  compensation.  This  rule 
receives  its  most  familiar  illustration  in  the  cases  of  land  which,  to 
be  taxable,  must  be  within  the  limits  of  the  State.     Indeed,  we  know 


14  UNION    TRANSIT    CO.     V.    KENTICKY.  [ciIAP.     I. 

of  no  case  where  a  legislature  has  assumed  to  impose  a  tax  upon  land 
witliin  the  jurisdiction  of  another  State,  much  less  where  such  action 
has  been  defended  by  any  court.  It  is  said  by  this  court  in  the 
Foreign-held  Bond  Case,  15  Wall.  300,  319,  that  no  adjudication 
should  be  necessary  to  establish  so  obvious  a  proposition  as  that 
property  lying  beyond  the  jurisdiction  of  a  State  is  not  a  subject 
upon  which  her  taxing  power  can  be  legitimately  exercised. 

The  argument  against  the  taxability  of  land  within  the  jurisdiction 
of  another  State  applies  with  equal  cogency  to  tangible  personal  prop- 
erty beyond  the  jurisdiction.  It  is  not  only  beyond  the  sovereignty  of 
the  taxing  State,  but  does  not  and  cannot  receive  protection  under  its 
laws.  True,  a  resident  owner  ma}'  receive  an  income  from  such 
property,  but  the  same  may  be  said  of  real  estate  within  a  foreign 
jurisdiction.  "Whatever  be  the  rights  of  the  State  with  respect 
to  the  taxation  of  such  income,  it  is  clearly  beyond  its  power  to  tax 
the  land  from  which  the  income  is  derived.  As  we  said  in  Louisville 
&c.  Ferry  Co.  v.  Kentucky,  188  U.  S.,  385,  396  :  "  While  the  mode, 
form,  and  extent  of  taxation  are,  speaking  generally,  limited  only  by 
the  wisdom  of  the  legislature,  that  power  is  limited  by  principle  in- 
hering in  the  ver}-  nature  of  constitutional  government,  namely,  that 
the  taxation  imposed  must  have  relation  to  a  subject  within  the  jurisdic- 
tion of  the  taxing  government."  See  also  McCuUoch  /*.  Maryland,  4 
Wheat.  316,  429;  Hays  v.  Pacific  Mail  S.  S.  Co.,  17  How.  596,  599  ; 
St.  Louis  V.  Ferry  Co.,  11  Wall.  423,  429,  431  ;  Morgan  v.  Parham, 
16  Wall.  471,  476. 

Respecting  this,  there  is  an  obvious  distinction  between  Che  tangible 
and  intangible  propert}',  in  the  fact  that  the  latter  is  held  secretly  ; 
that  there  is  no  method  by  which  its  existence  or  ownership  can  be 
ascertained  in  the  State  of  its  situs,  except  perhaps  in  the  case  of 
mortgages  or  shares  of  stock.  So  if  the  owner  be  discovered,  there  is 
no  way  1)}'  which  he  can  be  reached  by  process  in  a  State  other  than 
that  of  his  domicil,  or  the  collection  of  the  tax  otherwise  enforced. 
In  this  class  of  cases  the  tendency  of  modern  authorities  is  to  appl}'  the 
maxim  mohilia  seqimntur  personam,  and  to  hold  that  the  property  may 
be  taxed  at  the  domicil  of  the  owner  as  the  real  situs  of  the  debt,  and 
also,  more  particularly  in  the  case  of  mortgages,  in  the  State  where 
the  property  is  retained.  Such  has  been  the  repeated  rulings  of  this 
court.  Tappan  v.  Merchants'  National  Bank,  19  Wall.  490  ;  Kirtland 
V.  Hotchkiss,  100  U.  S.  491 ;  Bonaparte  v.  Tax  Court,  104  U.  S.  592; 
Sturgis  V.  Carter,  114  U.  S.  511;  Kidd  v.  Alabama,  188  U.  S.  730; 
Blackstone  /•.  Miller,  188  U.  S.  189. 

If  tliis  occasionalh-  results  in  double  taxation,  it  muchoftener  happens 
that  tills  class  of  propert}'  escapes  altogether.  In  the  case  of  intangible 
property,  the  law  does  not  look  for  absolute  equality,  but  to  the  much 
more  practical  consideration  of  collecting  the  tax  upon  such  property, 
either  in  the  State  of  the  domicil  or  the  situs.  Of  course,  we  do  not 
enter  into  a  consideration  of  the  question,  so  much  discussed  bj-  polit- 


fllAP.  I.]  UNION  TRANSIT  CO.   V.    KENTUCKY.  15 

ical  oconomists,  of  the  double  taxation  involved  in  taxing  the  property 
from  wliich  these  securities  arise,  and  also  tlie  burdens  u|>on  such  prop- 
erty, sucli  as  mortgages,  shares  of  stock  and  the  like  —  the  securities 
themselves. 

The  arguments  in  favor  of  the  taxation  of  intangil)le  property  at  the 
domicil  of  the  owner  have  no  application  to  tangible  property.  The 
fact  lliat  such  property  is  visible,  easily  found  and  diflicult  to  conceal, 
and  tlie  tax  readily  coUectil)Ie,  is  so  cogent  an  argument  for  its  taxa- 
tion at  its  .'<iti/s,  that  of  late  there  is  a  general  consensus  of  opinion 
that  it  is  taxable  in  the  State  where  it  is  permanently  located  and  em- 
ployed, and  where  it  receives  its  entire  protection,  irrespective  of  the 
domicil  of  the  owner.  We  iiave,  ourselves,  held  in  a  number  of  cases 
that  such  pro[)erty  permanently  located  in  a  State  other  than  that  of 
its  owner  is  taxable  there.  Brown  r.  Houston,  114  U.  S.  022;  Coe  i>. 
Errol,  116  U.  S.  517  ;  Pullman's  Car  Co.  v.  Pennsylvania,  141  U.  S.  18  ; 
Western  Union  Telegraph  Co.  v.  ]\Iassachusetts,  125  U.  S.  530  ;  Rail- 
road Company  /'.  Peniston,  18  Wall.  5  ;  American  Refrigerator  Transit 
Company  r.  Hall,  174  U.  S.  70;  Pittsburgh  Coal  Company  /■.  Bates, 
156  U.  S.  577  ;  Old  Dominion  Steamship  Comi)any  v.  Virginia,  198 
U.  S.  299.  We  have  also  held  that,  if  a  corporation  be  engaged  in 
running  railroad  cars  into,  through,  and  out  of  the  State,  and  having  at 
all  times  a  large  number  of  cars  v/ithin  the  State,  it  may  be  taxed  by 
taking  as  the  basis  of  assessment  such  proportion  of  its  capital  stock  as 
the  number  of  miles  of  railroad  over  whicii  its  cars  are  run  within  the 
State  bears  to  the  whole  number  of  miles  in  all  the  States  over  which 
its  cars  are  run.     Pullman's  Car  Co.  v.  Pennsylvania,  141  U.  S.  18. 

There  are  doubtless  cases  in  the  State  reports  announcing  the  prin- 
ciple that  the  an(;ient  maxim  of  iitobilUi  sequuntur  persofunn  still 
applies  to  personal  property,  and  that  it  may  be  taxed  at  the  domicil 
of  the  owner,  but  upon  examination  they  all  or  nearly  all  relate  to 
intangible  property,  such  as  stocks,  bonds,  notes,  and  other  choses  in 
action.  We  are  cited  to  none  ap[)lying  this  rule  to  tangible  property, 
and  after  a  careful  examination  have  not  been  able  to  find  any  wherein 
the  question  is  squarely  presented,  unless  it  be  that  of  Wheaton  v. 
Mickel,  63  N.  J.  Law,  525,  where  a  resident  of  New  Jersey  was  taxed 
for  certain  coastwise  and  seagoing  vessels  located  in  Pennsylvania.  It 
did  not  appear,  however,  that  they  were  permanently  located  there. 
The  case  turned  upon  the  construction  of  a  State  statute,  and  the  ques- 
tion of  constitutionality  was  not  raised.  If  there  are  any  other  cases 
holding  that  the  maxim  applies  to  tangible  personal  property,  they  are 
wholly  exceptional,  and  were  decided  at  a  time  when  personal  property 
was  comparatively  of  small  amount,  and  consisted  principally  of  stocks 
in  trade,  horses,  cattle,  vehicles,  and  vessels  engageil  in  navigation. 
But  in  view  of  the  enormous  increase  of  such  property  since  the  in- 
troduction of  railways  and  the  growth  of  manufactures,  the  tendency 
has  been  in  recent  years  to  treat  it  as  having  a  situs  of  its  own  for 
the  purpose  of  taxation,   and  correlatively  to  exempt  at  the  domicil  of 


16  l'^'IO^'     TKAXSIT     CO.     /■.     KENTUCKY.  [CHAl'.    I. 

Its  owner.  The  cases  in  the  State  reports  upon  this  subject  usually 
turn  upon  the  construction  of  local  statutes  granting  or  withholding  the 
right  to  tax  extra-territorial  propert3-,  and  do  not  involve  the  constitu- 
tional principle  here  invoked.  Man}'  of  them,  such,  for  instance,  as 
Blood  I'.  Sayre,  17  Vt.  609;  Preston  r.  Boston,  12  Pickering,  7; 
Pease  r.  Whitney,  8  iNIass.  93;  Gray  /•.  Kettel,  12  Mass.  IGl,  turn 
upon  the  taxahilit\'  of  propertj'  wliere  the  owner  is  located  in  one, 
and  liie  property  in  another,  of  two  jurisdictions  within  the  same  State, 
somelimt'S  even  involving  double  taxation,  and  are  not  in  point  here. 

One  of  tiie  most  valuable  of  the  State  cases  is  that  of  Hoyt  v. 
Coniniissioners  of  Taxes,  23  N.  Y.  224,  where,  under  the  New  York 
Statute,  it  was  held  that  the  tangible  property  of  a  resident  actually 
situated  in  another  State  or  country'  was  not  to  be  included  in  the  as- 
sessment against  him.  The  statute  declared  that  "all  lands  and  all 
personal  estate  witliin  this  State  "  were  liable  for  taxation,  and  it  was 
said  in  a  most  instructive  opinion  by  Chief  Justice  Comstock  that  the 
language  could  not  be  obscured  b}'  the  introduction  of  a  legal  fiction 
about  tiie  situs  of  personal  estate.  It  was  said  tliat  this  fiction  involved 
the  necessar}-  consequence  that  "  goods  and  chattels  actually  within 
this  State  are  not  here  in  any  legal  sense,  or  for  any  legal  purpose,  if 
the  owner  resides  abroad  ;  "  and  that  the  maxim  mobilia  sequuntur 
personam  ma}-  only  be  resorted  to  when  convenience  and  justice  so  re- 
quire. The  proper  use  of  legal  fiction  is  to  prevent  injustice,  accord- 
ing to  the  maxim  "  ^n  JictionH  juris  semper  cequitas  existat."  See 
Eidman  v.  Martinez,  184  U.  S.  578;  Blackstone  v.  Miller,  188  U.  S. 
189,  206.  "  No  fiction,"  says  Blackstone,  "shall  extend  to  work  an 
injury;  its  proper  operation  being  to  prevent  a  mischief  or  remedy  an 
inconvenience,  which  might  result  from  a  general  rule  of  law."  The 
opinion  argues  with  great  force  against  the  injustice  of  taxing  extra- 
territorial property,  when  it  is  also  taxable  in  the  State  where  it  is  lo- 
cated. Similar  cases  to  the  same  effect  are  People  v.  Smith,  88  N.  Y. 
i576  ;  City  of  New  Albany  r.  Meekin,  3  Indiana,  481  ;  Wilkey  /'.  City  of 
Pekin,  19  Illinois,  160;  Johnson  v.  Lexington,  14  B.  Monroe,  521; 
Catlin  V.  Hull,  21  Vermont,  152  ;  Nashua  Bank  /•.  Nashua,  46  N.  H. 
389. 

In  Weaver's  Estate  v.  State,  110  Iowa,  328,  it  was  held  by  the  Su- 
preme Court  of  Iowa  that  a  herd  of  cattle  within  the  State  of  Mis- 
souri belonging  to  a  resident  of  Iowa,  was  not  subject  to  an 
inheritance  tax  upon  his  decease.  In  Commonwealth  r.  American 
Dredging  Corai)any,  122  Penna,  St.  386,  it  was  held  that  a  Penn- 
sylvania coiporation  was  taxable  in  respect  to  certain  dredges 
and  other  similar  vessels  which  were  built,  but  not  permanently 
retained  outside  of  the  state.  It  was  said  that  the  non-taxability  of 
tangible  personal  property  located  permanently  outside  of  the  State 
was  not  "because  of  the  technical  principle  that  the  situs  of  personal 
property  is  where  the  domicil  of  the  owner  is  found.  This  rule  is 
doubtless  true  as  to  intangible  property,  such  as  bonds,  mortgages,  and 


CHAP.   I.]  rNIO.N     TKAXSIT   CO.    /'.    KKNII  (KY.  17 

Other  evidences  of  debt.  But  tlie  better  opinion  seems  to  be  tliat  it 
does  not  hold  in  the  case  of  visible  tangible  personal  property  perma- 
nently located  in  another  State,  In  such  cases  it  is  taxal)le  within 
the  jurisdiction  where  found,  and  is  exempt  at  the  doraicil  of  the 
ownei."  The  property'  in  that  case,  liowever,  was  held  not  to  be  per- 
manently outside  of  the  State,  and  therefore  not  exempt  from  taxation. 
The  rule,  however,  seems  to  be  well  settled  in  Pennsylvania  that  so 
much  of  the  tangil)le  property  of  a  corporation  as  is  situated  in 
another  State,  and  tliere  employed  in  its  corporate  business,  is  not 
taxable  in  Pennsylvania.  Commonwealth  /•.  Montgomery  &c.  Mining 
Co.,  o  Pa.  County  Courts  Rei).  .S!) ;  Commonwealth  r.  Railroad  Co., 
145  Pa.  St.  96;  Commonwealth  /•.  Westinghouse  Mfg.  Co.,  151  Pa.  St. 
265;  Commonwealth  r.  Standard  Oil  Co.,  101  Pa.  St.  119.  The  rule  is 
the  same  in  New  York.  Pacilic  Steamship  Company  r.  Commissioners, 
46  How.  Pr.  315. 

But  there  are  two  recent  cases  in  this  court  which  we  think  com- 
pletely cover  the  question  under  consideration  and  require  the  reversal 
of  the  judgment  of  the  State  court.  The  first  of  these  is  that  of  the 
Louisville  &c.  Ferry  Co.  r.  Kentucky,  188  U.  S.  385.  That  was  an 
action  to  recover  certain  taxes  imposed  upon  the  corporate  franchise 
of  the  defendant  compan}',  which  was  organized  to  establish  and  main- 
tain a  ferry  between  Kentucky  and  Indiana.  The  defendant  was  also 
licensed  by  the  State  of  Indiana.  We  held  that  the  fact  that  such 
franchise  had  been  granteil  by  the  Commonwealth  of  Kentucky  did 
not  bring  within  the  jurisdiction  of  Kentuck}'  for  the  purpose  of  tax- 
ation the  franchise  granted  to  the  same  company  b}'  Indiana,  and 
which  we  held  to  be  an  incorporeal  hereditament  derived  from  and 
having  its  legal  situs  in  that  State.  It  was  adjudged  that  such  taxa- 
tion amounted  to  a  deprivation  of  property  witiiout  due  process  of  law, 
in  violation  of  the  Fourteenth  Amendment,  as  much  so  as  if  the  State 
taxed  the  land  owned  by  that  company ;  and  that  the  officers  of  the 
State  had  exceeded  their  power  in  taxing  the  whole  franchise  without 
making  a  deduction  for  that  obtained  from  Indiana,  the  two  being 
distinct,  "although  the  enjoyment  of  both  are  essential  to  a  complete 
ferry  right  for  the  transportation  of  persons  and  property  across  the 
river  both  ways.'' 

The  other  and  more  recent  c-ase  is  that  of  the  Delaware  &c.  Rail- 
road Co.  V.  Pennsylvania,  198  V.  S.  341.  That  was  an  assessment 
upon  the  capital  stock  of  the  railroad  company,  wherein  it  was  eon- 
tended  that  the  assessor  shouKl  have  deducted  from  the  value  of  such 
stock  certain  coal  mined  in  Pennsylvania  and  owned  by  it,  but  stored 
in  New  York,  there  awaiting  sale,  and  beyond  the  jurisdiction  of  the 
commonwealth  at  the  time  appraisement  was  made.  This  coal  was 
taxable,  and  in  fact  was  taxed  in  the  State  where  it  rested  for  the  pur- 
poses of  sale  at  the  time  when  the  appraisement  in  question  was  made. 
Both  this  court  and  the  Supreme  Court  of  Pennsylvania  had  held  that 
a  tax  on  the  corporate  stock  is  a  tax  on  the  assets  of  the  corporation 


18  UNION    TRANSIT    CO.    V.    KENTUCKY.  [CHAP.    I. 

issuing  such  stock.  The  two  courts  agreed  in  the  general  proposition 
that  tangible  propert}-  permanentl}'  outside  of  the  State,  and  having  no 
situs  within  the  State,  coukl  not  be  taxed.  But  the\-  differed  upon  the 
question  whetlier  the  coal  involved  was  permanently  outside  of  the 
State.  In  delivering  the  opinion  it  was  said:  '' However  temporary 
the  stay  of  the  coal  might  be  in  the  particular  foreign  States  where  it 
was  resting  at  the  time  of  the  appraisement,  it  was  definitely  and  for- 
ever beyond  the  jurisdiction  of  Pennsylvania.  And  it  was  within  the 
jurisdiction  of  the  foreign  States  for  purposes  of  taxation,  and  in  truth 
it  was  there  taxed.  We  regard  this  tax  as  in  sul)stauce  and  in  fact, 
though  not  in  form,  a  tax  specifically  levied  upon  the  propert}'  of  the 
corporation,  and  part  of  that  property  is  outside  and  beyond  the  juris- 
diction of  the  State  which  thus  assumes  to  tax  it."  The  decision  in  that 
case  was  really  broader  than  the  exigencies  of  the  case  under  consider- 
ation required,  as  the  tax  was  not  upon  the  personal  property  itself, 
but  upon  the  capital  stock  of  a  Pennsylvania  cori)oration,  a  part  of 
which  stock  was  represented  by  the  coal,  the  value  of  which  was  held 
should  have  been  deducted. 

The  adoption  of  a  general  rule  that  tangible  personal  property  in 
other  Slates  may  be  taxed  at  the  domicil  of  the  owner  involves  possi- 
bilities of  an  extremeh' serious  character.  Not  only  would  it  author- 
ize the  taxation  of  furniture  and  other  propert}'  kept  at  country  houses 
in  other  States  or  even  in  foreign  countries,  of  stocks  of  goods  and  mer- 
chandise kept  at  branch  establishments  when  already  taxed  at  the  State 
of  their  situs,  but  of  that  enormous  mass  of  personal  property  belong- 
ing to  railwa3's  and  other  corporations  which  might  be  taxed  in  the 
state  where  the}'  are  incorporated,  though  their  charters  contenii)lated 
the  construction  and  operation  of  roads  wholly  outside  the  State,  and 
sometimes  across  the  continent,  and  when  in  no  other  particular  they 
are  subject  to  its  laws  and  entitled  to  its  protection.  The  propriety 
of  such  incorporations,  where  no  business  is  done  within  the  State,  is 
open  to  a  grave  doubt,  but  it  is  possible  that  legislation  alone  can 
furnish  a  remedy. 

Our  conclusion  upon  this  branch  of  the  case  renders  it  unnecessary 
to  decide  the  second  question,  viz  :  Whether  the  Transit  Compau}'  was 
denied  the  equal  protection  of  the  laws. 

It  is  unnecessary  to  sa}'  that  this  case  does  not  involve  the  question 
of  the  taxation  of  intangible  personal  property,  or  of  inheritance  or 
succession  taxes,  or  of  questions  arising  between  different  municipali- 
ties or  taxing  districts  within  the  same  State,  which  are  controlled  by 
different  considerations. 

AVe  are  of  opinion  that  the  cars  in  question,  so  far  as  they  were 
located  and  employed  in  other  States  than  Kentuck}',  were  not  subject 
to  the  taxing  power  of  that  commonwealth,  and  that  the  judgment  of 
the  Court  of  Appeals  must  be  reversed,  and  the  case  remanded  to  that 
court  for  further  proceedings  not  inconsistent  with  this  opinion. 

Mr.  Justick  Whitk  concurred  in  tli^  result. 


CHAP.     I.]         NEW     YOIiK    CENTKAI.    IIAII.ROAD    I'.    MILLER.  !'.> 

Mr.  Justice  Holmes  :  It  seems  to  me  that  the  result  reached  by  the 
court  probably  is  a  desirable  one,  but  I  hardly  understand  liow  it  can 
be  (Icchici'd  from  the  Fourteenth  Amendu)ent,  and  as  the  Chief  Justice 
feels  the  same  dilllculty,  1  think  it  [)ro[)er  to  say  that  my  doubt  has 
not  been  removed. 


NEW   YORK   CENTRAL   RAILROAD   v.   MILLER. 

SuPRKMK  Court  of  tfie  United  States.     1900. 
[Reported  202  U.  S.  584.] 

Holmes,  J.  These  cases  arise  upon  writs  of  certiorari,  issued  under 
the  State  law  and  addressed  to  the  State  com|)troller  for  tlie  time  being, 
to  revise  taxes  imposed  upon  the  relator  for  the  years  IDUd,  19<>l,  11)02, 
1903  and  1904  respectively.  The  tax  was  levied  under  New  York  Laws 
of  1896,  c.  908,  §  182,  which,  so  far  as  material,  is  as  follows  :  "  Franchise 
Tax  on  Corporations. —  Every  corporation  .  .  .  incor|)orated  .  .  .  under 
.  .  .  law  in  this  State,  shall  pay  to  the  State  treasurer  annually,  an  annual 
tax  to  be  computed  upon  the  basis  of  the  amount  of  its  capital  stot^k 
employed  within  this  State  and  ui)on  each  dollar  of  such  amount."  at 
a  certain  rate,  if  the  dividends  amount  to  six  per  cent  or  more  ui)on  the 
par  value  of  such  capital  stock.  "  If  such  dividend  or  dividends  amount 
to  less  than  six  per  centum  on  the  par  value  of  the  capital  stock  [as  was 
the  case  with  the  relator],  the  tax  shall  be  at  the  rate  of  one  and  one-half 
mills  upon  such  portion  of  the  capital  stock  at  par  as  the  amount  of  cap- 
ital employed  within  this  State  bears  to  the  entire  capital  of  the  corpo- 
ration." It  is  provided  further  by  the  same  section  that  every  foreign 
corporation,  etc.,  "shall  pay  a  like  tax  for  the  privilege  of  exercising 
its  corporate  franchises  or  carrying  on  its  business  in  such  corporate 
or  organized  capacity  in  this  State,  to  be  computed  upon  the  basis  of 
the  capital  employed  by  it  within  this  State." 

The  relator  is  a  New  York  corporation  owning  or  hiring  lines  without 
as  well  as  within  the  State,  having  arrangements  with  other  carriers  for 
through  transportation,  routing  and  rating,  and  sending  its  cars  to  points 
without  as  well  as  within  the  State,  and  over  other  lines  as  well  as  its 
own.  The  cars  often  are  out  of  the  relator's  possession  for  some  time, 
and  may  be  transferred  to  many  roads  successively,  and  even  may  be 
used  by  other  roads  for  their  own  independent  business,  before  they 
return  to  the  relator  or  the  State.  In  short,  by  the  familiar  course  of 
railroad  business  a  considerable  proportion  of  the  relator's  cars  con- 
stantly is  out  of  the  State,  and  on  this  ground  the  relator  contended 
that  that  proportion  should  be  deducted  from  its  entire  capital,  in  order 
to  find  the  capital  stock  employed  within  the  State.  This  contention 
the  comptroller  disallowed. 

The  writ  of  certiorari  in  the  earliest  case,  No.  81,  with  the  return  set- 
ting forth  the  proceedings  of  the  comptroller.  Knight,  and  the  evidence 


20  NEW    YORK    CENTRjVL    RAILROAD    r.    MILLER.        [ciIAP.    I. 

given  before  him.  was  heard  by  the  AppcUato  Division  of  the  Supreme 
Court,  aud  a  reduction  of  the  amount  of  the  lax  was  ordered.  7.')  A  pp. 
Div.  169.  On  appeal  the  Court  of  Appeals  ordered  the  proceedings  to 
be  remitted  to  the  comi)troller,  to  the  end  that  further  evidence  might 
be  taken  upon  the  question  whether  any  of  the  rehitor's  roHlng  stock 
was  used  exehisively  outside  of  the  8late,  with  directions  that  it'  it  shouUl 
be  found  that  such  was  the  fact  the  amount  of  the  rolUng  stock  so  used 
should  be  deducted.  173  N.  Y.  255.  On  rehearing  of  No.  81  and  with 
it  No.  82,  before  the  com|)troller,  now  Miller,  no  evidence  was  offered 
to  prove  that  any  of  the  relators  cars  or  engines  were  used  continuoush 
and  exclusively  outside  of  the  State  during  liie  whole  tax  year.  In  the 
later  cases  it  was  admitted  that  no  substantial  amount  of  the  equipment 
was  so  used  during  the  similar  period.  But  in  all  of  them  evidence  was 
offered  of  the  movements  of  particular  cars,  to  illustrate  the  transfers 
which  they  went  through  before  they  returned,  as  has  been  stated,  evi- 
dence of  the  relator's  road  mileage  outside  and  inside  of  the  State,  and 
also  evidence  of  the  car  niileage  outside  and  inside  of  the  State,  in  order 
to  show,  on  one  footing  or  the  other,  that  a  certain  proportion  of  cars, 
although  not  the  same  cars,  was  continuously  without  the  State  during 
the  whole  tax  year.  The  comptroller  refused  to  make  any  reduction 
of  the  tax,  and  the  case  being  taken  up  again,  liis  refusal  was  atfliined 
by  the  Appellate  Division  of  the  Supreme  Court  and  by  the  Court  of 
Appeals  on  the  authority  of  the  former  decision.  89  App.  Div.  127; 
177  N.  Y.  584.  The  later  cases  took  substantially  the  same  course. 
The  relator  saved  the  questions  whether  the  statute  as  construed  was 
not  contrary  to  Article  1,  §  8,  of  the  Constitution  of  the  United  States, 
as  to  commerce  among  the  States;  Article  1,  §  10,  against  impairing 
the  obligation  of  contracts;  Article  4,  §  1,  as  to  giving  full  faith  and 
credit  to  the  public  acts  of  other  States  ;  and  the  Fourteenth  Amend- 
ment.    It  took  out  writs  of  error  and  brought  the  cases  here. 

The  argument  for  the  relator  had  woven  through  it  suggestions  which 
only  tended  to  show  that  the  construction  of  the  New  York  statute  b^' 
the  Court  of  Appeals  was  wrong.  Of  course  if  the  statute  as  construed 
is  valid  under  the  Constitution,  we  are  bound  by  the  construction  given 
to  it  by  the  State  court.  In  this  case  we  are  to  assume  that  the  statute 
purports  and  intends  to  allow  no  deduction  from  the  capital  stock  taken 
as  the  basis  of  the  tax,  unless  some  specific  portion  of  the  corporate 
property  is  outside  of  the  State  during  the  whole  tax  year.  We  must 
assume,  further,  that  no  part  of  the  corporate  property  in  question 
was  outside  of  the  State  during  the  whole  tax  year.  The  proposition 
reallj'  was  conceded,  as  we  have  said,  and  the  evidence  that  was 
offered  had  no  tendency  to  prove  the  contrary.  If  we  are  to  suppose 
that  the  reports  offered  in  evidence  were  accepted  as  competent  to 
establish  the  facts  which  they  set  forth,  still  it  would  be  going  a  very 
great  way  to  infer  from  car  mileage  the  average  number  or  proportion 
of  cars  absent  from  the  State.  For,  as  was  said  by  a  witness,  the  reports 
show  only  that  the  cars  made  so  many  miles,  but  it  might  be  ten  or  it 


<   IIAP.    I.]        NEW    YORK    CK.N'IKAI.    IIAII.UOAI)    /'.     MILLER.  21 

might  be  fifty  cars  that  made  tliein.  Cerlainly  no  infcreiice  whatever 
could  be  drawn  that  the  saiiu;  cars  were  al)s('iil  lioiii  ihe  .State  all  the 
time. 

In  view  of  what  we  have  said  it  is  qiiestioiialde  whether  the  relator 
has  offered  evidence  enough  to  open  the  conslitutional  olijections  urged 
against  the  tax.  But  as  it  cannot  he  doubted,  in  view  of  the  well-known 
course  of  railroad  business,  that  some  consideral»le  proportion  of  the 
relator's  cais  always  is  absent  from  the  State,  it  would  be  unsatisfactory 
to  turn  the  case  off  with  a  merely  technical  answer,  and  we  proceed- 
The  most  salient  points  of  the  relator's  argument  are  as  follows :  This 
tax  is  not  a  tax  on  the  franchise  to  be  a  corporation,  but  a  tax  on  the 
use  and  exercise  of  the  franchise  of  transportation.  The  use  of  this  or 
any  other  franchise  outside  the  State  cannot  be  taxed  by  New  York. 
The  car  mileage  within  the  State  and  tliat  upon  other  lines  without  the 
State  afford  a  basis  of  apportionment  of  the  average  total  of  cars  contin- 
uously employed  by  otlier  corporations  without  the  State,  and  the  relator's 
road  mileage  within  and  without  tlie  State  affords  a  basis  of  apportion- 
ment of  its  average  total  equipment  continuously  employed  by  it  re- 
spectively within  and  without  the  State.  To  tax  on  the  total  value  within 
and  without  is  beyond  the  jurisdiction  of  the  State,  a  taking  of  property- 
without  due  process  of  law,  and  an  unconstitutional  interference  with 
commerce  among  the  States. 

A  part  of  this  argument  vv(!  have  answered  already.  But  we  must  go 
further.  We  are  not  curious  to  inquire  exactl}'  what  kind  of  a  tax  this 
is  to  be  called.  If  it  can  be  sustained  by  the  name  given  to  it  by  the 
local  courts  it  mast  be  sustained  by  us.  It  is  called  a  franchise  tax  in 
the  act,  but  it  is  a  franchise  tax  measured  by  property.  A  tax  very 
like  the  present  was  treated  as  a  tax  on  tiie  property  of  the  corporation 
in  Delaware,  Lackawanna  &  Western  R.  R.  v.  Pennsylvania,  198  U.  S. 
341,  3o3.  This  seems  to  be  regarded  as  such  a  tax  by  the  Court  of 
Appeals  in  this  case.  See  People  v.  Morgan,  178  N.  Y.  433,  439.  If 
it  is  a  tax  on  any  franchise  which  the  State  of  New  York  gave,  and  the 
same  State  could  take  away,  it  stands  at  least  no  worse.  The  relator's 
argument  assumes  that  it  must  be  regarded  as  a  tax  of  a  particular  kind, 
in  order  to  invalidate  it,  although  it  might  be  valid  if  regarded  as  the 
State  court  regards  it. 

Suppose,  then,  that  the  State  of  New  York  had  taxed  the  property 
directly,  there  was  nothing  to  hinder  its  taxing  the  whole  of  it.  It  is 
true  that  it  has  been  decided  that  property,  even  of  a  domestic  corpora- 
tion, cannot  be  taxed  if  it  is  permanently  out  of  the  State.  Union  Re- 
frigerator Transit  Co.  v.  Kentucky,  199  U.  S.  194,  201,  211  ;  Delaware, 
Lackawanna «&  Western  R.  R.  '•.  Pennsylvania.  198  U.S.  341  ;  Louisville 
&  Jefferson ville  Ferry  Co.  /•.  Kentucky,  188  U.  S.  385.  But  it  has  not 
been  decided,  and  it  could  not  be  decided,  that  a  State  may  not  tax  its 
own  corporations  for  all  their  property  within  the  State  during  the  tax 
year,  even  if  every  item  of  tliat  property  should  be  taken  successively 
into  another  State  for  a  day,  a  week,  or  six  monttis,  and  then  brought 


22  NEW    YORK    CEXTKAL    KAILROAD    r.    MILLEE.        [ciIAP.    I. 

back.  Using  the  language  of  domicil,  which  now  so  frequently  is  ap- 
plied to  inanimate  things,  tlie  State  of  origin  remains  the  permanent 
situs  of  the  property,  notwithstanding  its  occasional  excursions  to 
foreign  parts.  Ayer  &  Lord  Tie  Co.  v.  Kentucky,  May  21,  1906, 
202  U.  S.  409.  See  also  Union  Refrigerator  Transit  Co.  v.  Kentucky 
199  U.  8.  194,  208, '209. 

It  was  suggested  that  this  case  is  but  the  complement  of  Pullman's 
Palace  Car  Co.  v.  Pennsylvania,  141  U.  S.  18,  and  tliat  as  tliere  a  tax 
upon  a  foreign  corporation  was  sustained,  levied  on  such  proportion  of 
its  capital  stock  as  the  miles  of  track  over  which  its  cars  were  run  within 
the  State  bore  to  the  whole  number  of  miles  over  which  its  cars  were 
run.  so  here  in  the  domicil  of  such  a  corporation  there  should  be  an  ex- 
emption corresponding  to  tbe  tax  held  to  be  lawfully  levied  elsewhere. 
But  in  that  case  it  was  found  that  the  "  cars  used  in  this  State  have, 
during  all  the  time  for  which  tax  is  charged,  been  running  into,  through 
and  out  of  the  State."  The  same  cars  were  continuously  receiving  the 
protection  of  the  State  and,  therefore,  it  was  just  that  the  State  should 
tax  a  proportion  of  them.  Whether  if  the  same  amount  of  protection 
had  been  received  in  respect  of  constantly  changing  cars  the  same  prin- 
ciple would  have  applied  was  not  decided,  and  it  is  not  necessary  to 
decide  now.  In  the  present  case,  however,  it  does  not  appear  that  any 
specific  cars  or  any  average  of  cars  was  so  continuousl}'  in  any  other 
state  as  to  be  taxal)le  there.  The  absences  relied  on  were  not  in  the 
coirrse  of  travel  upon  fixed  routes,  but  random  excursions  of  casually 
chosen  cars,  determined  by  the  varying  orders  of  particular  shippers 
and  tlie  arbitrary  convenience  of  other  roads.  Therefore  we  need  not 
consider  either  whether  there  is  any  necessary  parallelism  between 
liability  elsewhere  and  immunity  at  home. 

Judgments  affirmed 


CHAP.   I.]        KIDKI.ITY   &    COLUMIIIA   TUIST   CO.    1'.   I.OUISVILLE.       23 


PIDFLITY  &  COLUMBIA  TRUST  CO.  v.  LOUISVILLE. 
Supreme  Court  of  the  United  States.     1917. 

[Reported  254  U.  8.  54.] 

Holmes,  J.  This  is  a  suit  brouglit  by  the  City  of  Louisville, 
Kentucky,  to  recover  annual  taxes  I'ur  the  years  1907  and  1908  in 
respect  of  personal  property  omitted  from  the  original  assessments  to 
the  owner  L.  P.  Ewald  in  his  lifetime.  The  facts  as  simplified  for 
the  purposes  of  argument  here  are  that  Ewald  was  domiciled  in 
Louisville  but  continued  to  carry  on  a  business  in  St.  Louis,  Missouri, 
where  he  formerly  had  lived.  Deposits  coming  in  part  if  not  wholly 
from  this  business  were  made  and  kept  in  St.  Louis  banks  subject  to 
Ewald's  order  alone.  They  were  not  used  in  the  business  and  be- 
longed absolutely  to  him.  The  question  is  wdiethcr  they  could  be 
taken  into  account  in  determining  the  amount  of  his  Louisville  tax. 
It  would  seem  that  some  deposits  were  represented  by  certificates  of 
deposit  but  it  was  stated  at  the  argument  that  no  point  was  made  of 
that.  See  Wheeler  v.  Sohmer,  233  U.  S.  434,  438.  We  are  to  take  it 
that  all  the  sums  are  to  be  dealt  with  as  ordinary  bank  accounts. 
The  decision  of  the  state  court  upheld  the  tax.  168  Kentucky,  71. 
171  Kentucky,  509.  172  Kentucky,  451. 

So  far  as  the  present  decision  is  concerned  we  may  concede  without 
going  into  argument  that  the  Missouri  deposits  could  have  been  taxed 
in  that  State,  under  the  decisions  of  this  court.  Liverpool  &  London 
&  Globe  Ins.  Co.  r.  Orleans  Assessors,  221  U.  S.  346,  354.  Metro- 
politan Life  Ins.  Co.  v.  New  Orleans,  205  U.  S.  395.  But  liability 
to  taxation  in  one^ State  does  not  necessarily  exclude  liability  in  an- 
other. Kidd  V.  Alabama,  188  U.  S.  730,  732.  Hawley  v.  Maiden, 
232  U.  S.  1,  13.  The*  present  tax  is  a  tax  upon  the  person,  as  is 
shown  by  the  form  of  the  suit,  and  is  imposed,  it  may  be  presumed, 
for  the  general  advantages  of  living  within  the  jurisdiction.  These 
advantages,  if  the  State  so  chooses,  may  be  measured  more  or  less  by 
reference  to  the  riches  of  the  person  taxed.  Unless  it  is  declared  un- 
lawful by  authority  we  see  notliing  to  hinder  the  State  from  taking 
a  man's  credits  into  account.  But  so  far  from  being  declared  un- 
lawful, it  has  been  decided  by  this  court  that  whether  a  State  shall 
measure  tlie  contribution  by  the  value  of  such  credits  and  choses  in 
action,  not  exempted  by  superior  authority,  is  the  State's  affair,  not 
to  be  interfered  witli  by  the  United  States,  and  therefore  tliat  a 
State  may  tax  a  man  for  a  debt  due  from  a  resident  of  another  State. 
Kirtland  v.  Hotchkiss,  100  U.  S.  491.  See  also  Tappan  r.  Mer- 
chants' National  Bank,  19  Wall.  190. 

Judgment  affirmed.^ 

White,  C.  J.,  dissents. 


*  The  court  here  considered  other  objections  to  the  tax.  —  Ed. 


24  DEWEY    l\    DES    MOINES.  [cKAP.    I. 

DEWEY  V.  DES  MOINES. 

SuPKEME  Court  op  the  United  States.     1899. 
[Reported  173  U.  8.  193.] 

The  petition  in  this  case  was  filed  by  the  plaintiff  in  error  to 
set  aside  certain  assessments  upon  his  lots  in  Des  Moines,  in  the 
State  of  lowa^  which  had  been  imposed  thereon  for  the  purpose  of 
paying  for  the  paving  of  the  street  upon  which  the  lots  abutted,  and 
to  obtain  a  jiulgment  enjoining  prueeedings  towards  their  sale,  and 
adjudging  that  there  was  no  personal  liability  to  pay  the  excess  of 
the  assessment  above  the  amount  realized  upon  the  sale  of  the  lots. 

The  petition  alleged  that  the  petitioner  was  at  all  times  during 
the  proceedings  mentioned  a  resident  of  Chicago,  in  the  State  of 
Illinois,  and  that  he  had  no  actual  notice  of  any  of  the  proceedings 
looking  towards  the  paving  of  the  street  upon  which  his  lots  abutted ; 
that  the  street  was  paved  under  the  direction  of  the  common  council, 
which  decided  upon  its  necessity,  and  the  expense  was,  by  the  provi- 
sions of  the  Iowa  statute,  assessed  upon  the  abutting  property,  and 
the  lot  owner  made  personally  liable  for  its  payment;  that  the  ex- 
pense of  the  improvement  was  greater  than  the  value  of  the  lots  as- 
sessed, and  the  common  council  knew  it  would  be  greater  when  the 
paving  was  ordered. 

Upon  the  trial  the  district  court  of  Polk  County  gave  judgment 
dismissing  the  petition  with  costs,  and  in  favor  of  the  contractor 
on  his  counterclaim,  foreclosing  the  lien  of  the  latter  and  ordering 
the  sale  of  the  lots,  and  the  judgment  also  provided  for  the  issue  of 
a  personal  or  general  execution  against  the  plaintiff  in  en-or  to  collect 
any  balance  remaining  unpaid  after  sale  of  the  lots. 

The  Supreme  Court  affirmed  the  judgment  of  the  District  Court, 
and  the  plaintiff  brought  the  case  here  by  writ  of  error. 

Peckham,  J.^  It  is  asserted  in  the  petition  that  the  defendant 
Dillworth,  the  treasurer  of  Holt  County,  is  attempting  to  enforce 
the  assessment  levied  by  the  common  council,  and  that  he  claims 
plaintiff  in  error  is  personally  liable  for  the  taxes  and  interest, 
and  will  enforce  payment  thereof  unless  restrained,  and  that  plain- 
tiff's personal  property  is  liable  to  be  illegally  seized  for  the  pay- 
ment of  the  tax.  These  allegations  are  substantially  admitted  by 
the  answers  of  the  defendants,  except  as  to  the  illegality  of  the 
possible  seizure  of  plaintiff''s  personal  property.  By  filing  the 
counterclaim  the  contractor  makes  a  direct  attempt  to  enforce, 
not  only  the  lien  upon  the  lots,  but  the  personal  liability  of  the 
lot  owner.  Thus  a  non-resident,  simply  because  he  was  the  owner 
of  property  on  a  street  in  a  city  in  the  State  of  Iowa,  finds  him- 
self by  the  provisions  of  the  state  statute,  and  without  the  service 
of  any  process  upon  him,  laid  under  a  personal  obligation  to  pay 
a  tax  assessed  by  the  common  council,  or  by  the  board  of  public 

'  Part  of  the  opinion,  involvinj^  no  point  of  taxation,  is  omitted.  —  En. 


liKWKV     r.    DJ;s    MOINKS.  ^J 

works  and  city  engineer  under  tlie  statute,  upon  liis  property  abut- 
ting upon  tlie  street,  for  the  ])urpose  of  paying  the  expenses  incurred 
in  paving  the  street,  which  expenses  are  greater  than  tlie  benefit  the 
lots  have  received  by  virtue  of  the  improvement.  The  plaintiff, 
prior  to  the  imposition  of  that  assessment,  had  never  submitted  him- 
self to  the  jurisdiction  of  the  State  of  Iowa,  and  the  only  jurisdiction 
that  State  had  in  the  assessment  proceedings  was  over  the  real  prop- 
erty belonging  to  him  and  abutting  on  the  street  to  be  improved. 
An  assessment  upon  lots,  for  a  local  improvement,  is  in  the  nature 
of  a  judgment. 

It  is  said  that  the  statute  (Code  of  Iowa,  sec.  478)  provides  for 
the  personal  liability  of  the  owner  of  lots  in  a  city  in  the  State  of 
Iowa,  to  pay  the  whole  tax  or  assessment  levied  to  pay  the  cost  of  a 
local  improvement,  and  that  the  same  statute  provides  that  the  as- 
sessment shall  also  be  a  lien  upon  the  respective  lots  from  the  time 
of  the  assessment.  It  is  also  said  tliat  the  statute  has  been  held  to  be 
valid  by  the  Iowa  Supreme  Court.  This  seems  to  be  true.  Burling- 
ton V.  Quick,  47  Iowa,  222,  226;  Farwell  v.  Des  Moines  Brick  Manu- 
facturing Co.,  97  Iowa,  286.  The  same  thing  is  also  held  in  the 
opinion  of  the  state  court  delivered  in  the  case  now  before  us. 

In  this  case  no  question  arises  with  regard  to  the  validity  of  a  per- 
sonal judgment  like  the  one  herein  against  a  resident  of  the  State  of 
Iowa,  and  we  therefore  express  no  opinion  upon  that  subject.  This 
plaintiff  was  at  all  times  a  non-resident  of  that  State,  and  we  think 
that  a  statute  authorizing  an  assessment  to  be  levied  upon  property 
for  a  local  improvement,  and  imposing  upon  the  lot  owner,  who  is  a 
non-resident  of  the  State,  a  personal  liability  to  pay  such  assessment, 
is  a  statute  which  the  State  has  no  power  to  enact,  and  which  cannot 
therefore  furnish  any  foundation  for  a  personal  claim  against  such 
non-resident.  There  is  no  course  of  reasoning  as  to  the  character  of 
an  assessment  upon  lots  for  a  local  improvement  by  which  it  can  be 
shown  that  any  jurisdiction  to  collect  the  assessment  personally  from 
a  non-resident  can  exist.  The  State  may  provide  for  the  sale  of  the 
property  upon  which  the  assessment  is  laid,  but  it  cannot  under  any 
guise  or  pretence  proceed  farther  and  impose  a  personal  liability  upon 
a  non-resident  to  pay  the  assessment  or  any  part  of  it.  To  enforce  an 
assessment  of  such  a  nature  against  a  non-resident,  so  far  as  his  per- 
sonal liability  is  concerned,  would  amount  to  the  taking  of  property 
without  due  process  of  law,  and  would  be  a  violation  of  the  Federal 
Constitution. 

In  this  proceeding  of  the  lot  owner  to  have  the  assessment  set  aside 
and  the  statutory  liability  of  plaintiff  adjudged  invalid  the  court  was 
not  justified  in  dismissing  the  petition  and  giving  the  contractor, 
not  only  judgment  on  his  counterclaim  foreclosing  his  lien,  but  also 
inserting  in  that  judgment  a  provision  for  a  personal  liability  against 
the  plaintiff  and  for  a  general  execution  against  him.  Such  a  provi- 
sion against  a  non-resident,  although  a  litigant  in  the  courts  of 
the  State,  was  not  only  erroneous  but  it  was  so  far  erroneous  as  to 
constitute,  if  enforced,  a  violation  of  tlie  Federal  Constitution  for 
the  reason  alroadv  mentioned.     Bv  resorting  to  the  state  court  to 


26  DEWEY    V.    DES    MOINES.  [cHAP.    I. 

obtain  relief  from  the  assessment  and  from  an}^  personal  liability 
provided  for  by  the  statute,  the  plaintiff  did  not  thereby  in  any 
manner  consent,  or  render  himself  liable,  to  a  judgment  against 
him  providing  for  any  personal  liability.  Nor  did  the  counterclaim 
made  by  the  defendant  contractor  give  any  such  authority. 

The  principle  which  renders  void  a  statute  providing  for  the 
personal  liability  of  a  non-resident  to  pay  a  tax  of  this  nature  is  the 
same  which  prevents  a  State  from  taking  jurisdiction  through  its 
courts,  by  virtue  of  any  statute,  over  a  non-resident  not  served  with 
process  witliin  the  State,  to  enforce  a  mere  personal  liability,  and 
where  no  property  of  the  non-resident  has  been  seized  or  brought 
under  the  control  of  the  court.  This  principle  has  been  frequently 
decided  in  this  court.  One  of  the  leading  cases  is  Pennoyer  v.  Neff,, 
95  U.  S.  714,  and  many  other  cases  therein  cited.  Mexican  Central 
Kailway  v.  Pinkney,  149  U.  S.  194,  209. 

The  lot  owner  never  voluntarily  or  otherwise  appeared  in  any  of 
the  proceedings  leading  up  to  the  levying  of  the  assessment.  He  gave 
no  consent  which  amounted  to  an  acknowledgment  of  the  jurisdiction 
of  the  city  or  common  council  over  his  person. 

A  judgment  without  personal  service  against  a  non-resident  is  only 
good  so  far  as  it  affects  the  property  which  is  taken  or  brought  under 
the  control  of  the  court  or  other  tribunal  in  an  ordinary  action  to 
enforce  a  personal  liability,  and  no  jurisdiction  is  thereby  acquired 
over  the  person  of  a  non-resident  further  than  respects  the  property 
so  taken.  This  is  as  true  in  the  case  of  an  assessment  against  a  non- 
resident of  such  a  nature  as  this  one  as  in  the  case  of  a  more  formal 
judgment. 

The  jurisdiction  to  tax  exists  only  in  regard  to  persons  and  prop- 
erty or  upon  the  business  done  within  the  State,  and  such  jurisdiction 
cannot  be  enlarged  by  reason  of  a  statute  which,  assumes  to  make  a 
non-resident  personally  liable  to  pay  a  tax  of  the  nature  of  the  one 
in  question.  All  subjects  over  which  the  sovereign  power  of  the  State 
extends  are  objects  of  taxation.  Cooley  on  Taxation,  1st  ed.  pp.  3,  4; 
Burroughs  on  Taxation,  sec.  6.  The  power  of  the  State  to  tax  extends 
to  all  objects  within  the  sovereignty  of  the  State.  (Per  Mr.  Justice 
Clifford,  in  Hamilton  Company  v.  Massachusetts,  6  Wall.  632,  at 
638.)  The  power  to  tax  is  however  limited  to  persons,  property  and 
business  within  the  State,  and  it  cannot  reach  the  person  of  a  non- 
resident. State  Tax  on  Foreign-held  Bonds,  15  Wall.  300,  319.  In 
Cooley  on  Taxation,  1st  ed.  p.  121,  it  is  said  that  "  a  State  can  no 
more  subject  to  its  power  a  single  person  or  a  single  article  of  prop- 
erty whose  residence  or  legal  situs  is  in  another  State,  than  it  can 
subject  all  the  citizens  or  all  the  property  of  such  other  State  to  its 
power."  These  are  elementary  propositions,  but  they  are  referred  to 
only  for  the  purpose  of  pointing  out  that  a  statute  imposing  a  per- 
Bonal  liability  upon  a  non-resident  to  pay  such  an  assessment  as  this 
oversteps  the  sovereign  power  of  a  State. 

In  this  case  the  contractor,  by  filing  his  counterclaim  herein,  has 
commenced  the  enforcement  of  an  assessment  and  a  personal  liability 
imposed  by  virtue  of  just  such  a  statute,  and  the  judgment  under  re- 


STATE    V.    WHEELEE.  27 

view  gives  him  the  right  to  do  so.  The  lot  owner  is  called  upon  to 
make  such  defence  as  he  can  to  the  claim  of  personal  liability  or  else 
be  forever  barred  from  setting  it  up.  He  does  claim  that  as  a  non- 
resident he  did  not  have  sucli  notice,  and  tlie  State  or  city  did  not 
obtain  such  jurisdiction  over  him,  with  regard  to  the  original  assess- 
ment as  would  autliorize  the  establishment,  or  any  personal  liability 
on  his  part  to  pay  sucli  a.ssessmcut. 

The  contractor  novertlieless  has  obtained  a  judgment,  not  alone 
for  a  foreclosure  of  his  lien,  but  also  for  the  personal  liability  of  the 
lot  owner,  and  unless  he  can  in  this  proceeding  have  the  provision  in 
the  judgment,  for  a  personal  liability,  stricken  out,  the  lot  owner 
cannot  thereafter  resist  it,  even  when  the  lots  fail  (if  they  should 
fail)  to  bring  enougli  on  their  sale  to  satisfy  the  judgment. 

The  case  of  Davidson  v.  New  Orleans,  96  U.  8.  97,  has  been  cited 
as  authority  for  the  proposition  that  the  renderins;  of  a  personal 
judgment  for  the  amount  of  an  assessment  for  a  local  improvement 
is  a  matter  in  wliich  the  state  autliorities  cannot  be  controlled  by  the 
Federal  Constitution.  It  does  not  appear  in  that  case  that  the  com- 
plaining party,  in  regard  to  the  state  statute,  was  a  non-resident  of 
the  State,  but  on  the  contrary  it  would  seem,  that  she  was  a  resident 
thereof.  That  fact  is  a  most  material  one,  and  renders  the  case  so 
unlike  the  one  at  bar  as  to  make  it  unnecessary  to  further  refer  to  it. 

The  statute,  upon  which  the  right  to  enter  this  personal  judgment 
depends,  being  as  to  the  non-resident  lot  owner  an  illegal  enactment, 
it  follows  that  the  judgment  sliould  and  must  be  amended  by  striking 
out  the  provision  for  such  personal  liability.  For  that  purpose  the 
judgment  is 

Reversed  and  the  cause  remanded  to  the  Supreme  Court  of 
Iowa,  for  further  proceedings  therein  not  inconsistent  with 
thi^  opinion. 


STATE  V.  WHEELEE. 
Supreme  Coukt  of  North  Carolina.     1906. 

[Reported  141  A'.  C.  773.] 

Clarke,  C.  J.  The  defendant  appeals  from  a  conviction  and 
sentence  for  failing  to  work  the  public  roads  of  Wake  County,  as 
required  by  chapter  667,  Laws  1905,  amendatory  of  chapter  551, 
Laws  1903.  The  appeal  rests  upon  the  alleged  unconstitutionality 
of  the  statute.     The  defendant  contends: 

1.  Time  is  money.  Labor  is  a  man's  property  and  therefore  to 
exact  his  labor  and  time  to  work  the  roads  is  to  levy  a  tax  on  prop- 
erty and  such  is  unconstitutional  unless  ad  valorem. 

2.  That  if  working  the  road  is  a  poll  tax,  the  act  is  unconstitu- 
tional because  it  exacts  this  labor  only  of  "  able-bodied  male  persons 
between  the  ages  of  21  and  45,"  and  excepts  "  residents  in  incorpo- 
rated cities  and  towns  and  such  as  are  by  law  exempted  or  excused," 
whereas  the  poll  tax  (Const.  Art.  5,  §  1 )  is  to  be  laid  on  "'  every  male 
inhabitant  between  the  ages  of  21  and  50." 


28  STATE    r.    WHEELER.  [C11A1>.    I. 

3.  That  the  requirement  to  work  the  roads  is  not  placed  upon 
those  living  in  incorporated  towns  and  cities,  and  therefore  there 
is  a  denial  of  the  equal  protection  of  the  laws  required  by  the  four- 
teenth amenchnent  to  the  Constitution  of  the  United  States. 

4.  That  inasmuch  as  the  roads  are  now  worked  partly  by  taxation, 
supplemented  by  labor  exacted  by  the  statute,  and  the  latter  is  a 
property  tax  (a  man's  labor  being  his  property),  therefore  this  is 
double  taxation. 

These  points  have  been  repeatedly  passed  upon  adversely  to  the 
contentions  of  the  defendant.  State  v.  Sharp,  125  N.  C.  628,  which 
has  been  cited  and  approved  in  State  v.  Covington,  125  N.  C.  641; 
State  V.  Carter,  129  N.  C.  560;  Brooks  v.  Tripp,  135  N.  C.  161; 
State  V.  Holloman,  139  N.  C.  648.  But  counsel  ask  us  to  reconsider 
them,  and  we  have  given  the  matter  full  deliberation. 

For  nearly  two  hundred  and  fifty  years  the  roads  of  this  State  were 
worked  solely  by  the  conscription  of  labor.  It  may  have  been  in- 
equitable, but  it  was  never  thought  by  any  one  to  be  unconstitutional, 
nor  has  the  idea  been  advanced  heretofore  that  to  work  the  roads  by 
labor  was  to  work  them  by  taxation.  The  validity  of  working  the 
roads  by  labor  is  sustained  in  State  v.  Halifax,  15  N.  C.  345,  and  has 
been  recognized  in  countless  trials  for  failure  to  work  the  roads. 
Under  this  statute,  Wake  County  works  its  roads  partly  by  labor  sup- 
plemented by  funds  raised  by  taxation  and  other  funds  and  the  work 
of  its  convicts.  If  the  exaction  of  the  labor  of  residents  of  the  lo- 
cality is,  as  counsel  contend,  a  tax  upon  property,  then  we  simply 
have  a  higher  tax,  but  not  double  taxation.  The  tax  does  not  seem 
to  be  more  than  enough  to  keep  the  roads  in  good  order,  but  if  it 
should  so  prove,  the  people  themselves,  acting  through  their  elected 
representatives  in  the  General  Assembly,  and  the  board  of  county 
commissioners,  will  reduce  it.  The  tendency  of  the  times  is  to  re- 
quire better  roads,  which  necessarily  demands  higher  taxes  for  road 
purposes,  which  is  more  than  offset,  it  is  claimed,  by  the  benefits 
derived  from  better  roads.  But  that  is  a  matter  of  legislation  and 
administration.  The  courts  cannot  meddle  with  it.  Nor  is  there 
any  constitutional  prohibition  against  double  taxation.  Com'rs 
V.  Tobacco  Co.,  116  N.  C.  448;  Cooley,  Const.  Lim.  (7th  Ed.) 
738,  and  cases  there  cited.  It  exists  in  many  instances  that  will 
readily  occur  to  any  one,  as  the  taxation  of  mortgages  and  indebted- 
ness in  the  hands  of  a  creditor,  and  taxation  at  the  same  time  of 
mortgaged  property,  and  of  the  real  and  personal  property  of  a 
debtor,  without  reduction  by  reason  of  the  mortgage  or  other  in- 
debtedness ;  the  taxation  of  the  tangible  property  of  a  corporation  and 
also  of  its  capital  stock  and  of  its  franchises  and  also  of  the  certificates 
of  shares  in  the  hands  of  the  shareholders.  Sturges  v.  Carter,  114 
U.  S.  511;  Com'rs  v.  Tobacco  Co.,  supra.  There  are  many  other 
instances,  but  this  is  a  matter  of  legislation.  Certainly  this  is  not 
double  taxation  any  more  than  taxing  the  dweller  in  town  to  keep 
up  his  streets  (all  of  which  falls  upon  him),  and  also  laying  a  tax 
on  his  property  to  aid  in  working  the  roads. 

Nor  does  the  fourteenth  amendment  require  equality  in  levying 


STATE    V.    WIIEELKU, 


29 


taxation  by  the  State,  if  this  exaction  of  labor  be  taxation.  How  a 
state  shall  levy  its  taxation  is  a  matter  solely  for  its  Legislature, 
subject ^to  such  restrictions  as  the  state  Constitution  throws  around 
legislative  action.  If,  on  the  other  hand,  working  the  roads  by  labor 
IS  a  police  regulation  or  a  public  duty,  certainly  it  is  not  a  matter 
of  federal  supervision.  Besides,  as  the  dwellers  in  the  towns  keep  up 
their  streets  at  a  greater  expense  than  the  value  of  the  statutory 
labor  put  on  the  roads,  there  is  no  discrimination  of  which  the  de- 
fendant can  complain,  especially  as  the  tax  money  expended  on  the 
roads  to  supplement  the  statutory  labor  is  levied  on  town  property 
as  well  as  upon  that  in  the  country. 

The  requirement  to  work  the  roads  is  not  a  poll  or  capitation  tax, 
which  is  a  sum  of  money  required  to  be  paid  by  ''  every  male  in- 
habitant over  31  and  under  50  years  of  age,"  which  "shall  be  applied 
to  the  purposes  of  education  and  the  support  of  the  poor."  Const. 
Art.  5,  §§  1,  2.  Certainly  "  four  days'  work  on  the  public  roads  " 
in  one's  own  township  are  not  capable  of  being  applied  to  education, 
or  the  poor  or  anything  else  except  to  the  roads. 

This  brings  us  to  the  first  ground  urged.  To  say  that  "time  is 
money"  is  a  metaphor.  It  expresses  merely  the  fact  that  time  is 
of  value,  and  that  the  use  of  a  man's  muscle,  or  of  his  skill,  or  of 
his  mentality,  will  usually  procure  money  in  exchange.  But  tinae 
is  not  money,  nor  is  labor  property,  in  any  other  sense  than  that  it 
is  usually  of  some  value  and  its  proceeds  belong  to  the  individual  or 
to  the  parent  or  guardian  if  he  is  a  minor,  or  to  the  state  if  he  is  a 
convict.  But  it  is  not  property  in  the  sense  that  it  can  be  liable  to 
a  property  tax. 

As  already  pointed  out  in  State  v.  Sharp,  125  N.  C.  634,  the  con- 
scription of  labor  to  work  the  public  roads  is  not  a  tax  at  all  (Cooley, 
supra,  737;  Pleasant  v.  Kost,  29  111.  494),  but  the  exaction  of  a 
public  duty  like  service  upon  a  jury,  grand  jury,  coroner's  inquest, 
special  venire,  as  a  Avitness,  military  service  and  the  like,  which  men 
are  required  to  render  either  wholly  without  compensation,  or 
(usually)  with  inadequate  pav,  as  the  sovereign  may  require.  Guil- 
ford V.  Com'rs,  120  X.  C.  26 ;  State  v.  Hicks,  124  N.  C.  837. 
Originally  none  of  these  received  any  pay  whatever  (State  v.  Massey, 
104  N.  C.  878)  ;  the  duration  of  military  service  only  having  a  time 
limit.  And  to  this  day,  witnesses,  above  two,  to  each  material  fact, 
receive  no  pay  (Eevisal,  §  1300),  and  witnesses  for  the  losing  party 
receive  none  unless  he  is  solvent,  and  talesmen  summoned  upon  a 
special  venire  unless  chosen  on  the  trial  panel  receive  (except  in  a 
few  counties)  no  pay;  which  was  true  till  recently  of  witnesses  sum- 
moned before  the  grand  jury  in  all  cases  where  "not  a  true  bill" 
is  returned ;  and  witnesses  for  the  State  in  criminal  cases  where  the 
convicted  are  insolvent  receive  only  half  pay.  Even  when  a  witness 
or  a  juror  receives  a  prescribed  per  diem,  in  most  cases  it  is  less, 
in  many  cases  far  less,  than  what  his  time  was  worth  or  he  could 
have  earned.  If  the  State  can  take  his  services  for  less  than  their 
value,  it  is  because  it  has  a  right  to  require  them  as  a  public  duty 
nnd  loncc  it  can,  a?  of  old.  require  them  to  he  rendered  without  any 


30  STATE    V.    WHEELER.  [ciIAP.    I. 

compensation  at  all.  Wlio  will  say  that  $10  per  month  is  compensa- 
tion for  tlie  time  of  a  citizen  sent  to  the  front  in  time  of  war,  or 
to  put  down  riots,  and  for  the  hardships,  and  the  exposures  to 
weather,  to  disease,  to  danger  and  to  deatli  ?  If  the  State  can  exact 
such  services  it  can  exact  labor  to  improve  its  public  roads  for  the 
public  benefit.  The  worker  on  the  roads  gets  back  some  benefit 
therefrom.  It  was  a  crude  and  not  very  accurate  calcuhition  or 
balancing  of  benefits,  but  was  a  necessity  perhai)s  in  former  times 
when  currency  was  scarce  and  difficult  to  be  obtained  even  by  taxa- 
tion. It  is  still  a  matter  resting  in  the  legislative  discretion.  Jus- 
tices of  the  peace  and  some  other  officials  formerly  discharged  the 
public  duties  required  of  them  without  compensation. 

In  the  progress  of  time  we  have  gradually  commenced  payment,  to 
a  limited  extent,  for  most  public  services  exacted  as  a  public  duty. 
Justices  of  the  peace  receive  fees.  Some  witnesses  and  jurors  are 
paid,  usually  less  than  the  value  of  their  time,  but  many  witnesses, 
and  special  veniremen  usually  still  go  unpaid,  and  compulsory  mili- 
tary service  is  paid  only  what  the  Legislature  sees  fit.  The  public 
duty  of  the  residents  of  any  locality  to  work  upon  its  roads  has  been 
reduced  in  Wake  County  by  this  statute  to  four  days  per  annum,  and 
such  service  is  supplemented  by  the  work  of  the  force  of  county  con- 
victs, by  a  tax  of  12i/o  cents  upon  the  $100  worth  of  property  in  the 
cities  as  well  as  in  the  country  to  hire  labor  and  purchase  labor- 
saving  machinery,  by  the  appropriation  of  four-tenths  of  the  net 
proceeds  of  the  dispensary  in  Raleigh,  and  further  by  a  special  tax 
which  any  township  shall  see  fit  to  vote  for  the  benefit  of  the  roads 
therein,  and  the  four  days'  labor  required  can  be  commuted  by  the 
payment  of  $2.50,  with  which  the  county  will  hire  labor  instead. 

This  is  a  very  great  advance  upon  the  still  recent  custom,  which 
had  been  in  force  for  more  than  two  centuries,  of  working  the  roads 
entirely  and  solely  by  labor  called  out  in  the  discharge  of  the  public 
duty  of  the  inhabitants  of  each  locality  to  keep  the  highways  in  order. 
AYhenever  in  the  judgment  of  the  people  of  Wake  County  the  four 
days'  labor,  per  annum,  still  exacted  should  be  reduced,  or  entirely 
abolished,  they  can  send  representatives  to  the  General  Assembly 
who  can  doubtless  procure  such  changes  as  the  people  may  wish  in 
the  manner  of  working  the  public  roads.  As  we  said  at  last  term,  in 
State  V.  Holloman,  139  N.  C.  at  page  648,  "It  is  for  the  legislative 
department  to  prescribe  by  what  methods  the  roads  shall  be  worked 
and  kept  in  repair  —  whether  by  labor,  by  taxation  on  property,  or 
by  funds  raised  from  license  taxes,  or  by  a  mixture  of  two  or  more 
of  those  methods  —  and  this  may  vary  in  different  counties  and 
localities  to  meet  the  wishes  of  the  people  of  each,  and  can  be  changed 
by  subsequent  Legislatures." 

And  there,  after  the  fullest  consideration,  we  again  leave  the 
matter.  If  the  system  of  working  the  public  roads  in  any  locality 
is  not  satisfactory  to  the  majority  of  its  people,  relief  or  change  of 
method  must  be  sought  from  the  lawmaking  department. 

No  error. 

Brown  and  Walker,  JJ.,  concur  in  result. 


PKOFFIT    V.    ANDEItSON.  31 


PROFFIT  V.  ANDERSON. 

SuPEEME  Court  of  Appeals  of  Virginia.     1894. 
[Reported  20  Southeastern  Rep.  887.] 

William  F.  Proffit  was  imprisoned  bv  order  of  the  county  court 
for  refusing  to  work  tlie  roads  in  J^ouisa  County,  as  required  by  law. 
He  applied  to  the  Supreme  Court  for  a  writ  of  habeas  corpus,  and 
was  ordered  to  be  discharged  from  custody. 

Per  Curiam.  The  court  is  of  opinion,  for  the  reasons  hereinafter 
stated  that  the  petitioner,  William  F.  Proffit,  a  citizen  of  Louisa 
County,  Va.,  was  on  tlio  third  day  of  November  unlawfully  arrested 
and  imprisoned,  in  the  county  jail  of  said  county  by  F.  H.  Anderson, 
deputy  sheriff  for  J.  IT.  Wooifork,  sheriff  of  said  county,  under  a 
capias  pro  fine  issued  by  the  clerk  of  said  county  under  and  in  pur- 
suance of  an  order  of  the  County  Court  of  said  county  made  and  en- 
tered on  the  11th  day  of  July,  1892,  to  recover  of  said  petitioner  the 
road  fine  and  costs  mentioned  in  said  order  and  capias,  and  imposed 
upon  him  for  failing  to  work  on  the  public  roads  in  Cuckoo  Road 
di=lrict,  in  said  county,  when  warned  thereto,  as  required  by  an  act 
of  the  general  assembly  of  Virginia  approved  on  the  29th  day  of 
February,  1892,  entitled  ''  An  act  to  provide  for  working  and  keep- 
ing in  repair  the  public  roads  in  the  county  of  Louisa"  (Acts 
1891-92,  c.  417,  p.  686),  and  that  said  petitioner  is  illegally  re- 
strained of  his  liberty. 

2.  The  court  is  of  opinion  that  said  act,  so  ...  is  void,  because 
repugnant  to  Section  5  of  Article  10  of  the  Constitution  of  Virginia, 
which  declares:  "The  general  assembly  may  levy  a  tax  not  exceed- 
ing one  dollar  per  annum  on  every  male  citizen  who  has  attained  the 
age  of  twenty-one  years,  which  shall  be  applied  exclusively  in  aid  of 
public  free  schools:  and  counties  and  corporations  shall  have  power 
to  impose  a  capitation  tax,  not  exceeding  fifty  cents  per  annum,  for 
all  purposes."  This  provision  of  the  Constitution  effects  tw^o  pur- 
poses: (1)  It  authorizes  the  general  assembly  to  assess  a  capitation 
tax,  not  exceeding  $1  per  annum,  on  every  male  citizen  who  has 
attained  the  age  of  21  years,  and  expressly  dedicates  such  tax  to  the 
public  free  schools.  (2)  It  confers  directly  upon  the  counties  and 
corporations  the  power  to  impose  a  capitation  tax,  not  exceeding 
fifty  cents,  for  all  purposes.  The  provision  in  respect  to  counties  is 
not  subject  to  the  will  of  the  legislature  in  any  respect,  but  confers 
the  power  directly  upon  the  counties,  respectively.  The  question  is, 
does  the  act  in  question  impose  a  capitation  tax  in  the  form  of  road 
service?  This  question  can  only  receive  an  affirmative  ans\j'er.  It  is 
undeniably  true  that  taxes  may  be  levied  in  money,  in  service,  or  in 
kind,  and,  whetlier  in  the  one  form  or  other,  it  is  none  the  less  a  tax. 
"Taxation  exacts  money  or  services  from  individuals  as  and  for 
their  respective  shares  of  contribution  to  any  public  burthen."     Mr. 


32  GORDON    V.    SANDERSOl^.  [cHAP.    I. 

Justice  Euggles  in  People  v.  Mayor,  etc.,  of  Brooklyn,  4  N.  Y.  419. 
In  the  present  case  the  burden  imposed  is  in  form  and  substance  a 
per  capita  requisition  for  road  service,  and  cannot,  upon  principle, 
he  distinguished  from  the  ordinary  capitation  tax.  In  other  words, 
it  is  a  requisition  tax,  and  notliing  else ;  and,  being  in  excess  of  the 
capitation  tax  prescribed  by  the  said  fifth  section  of  article  10  of 
tlie  Constitution  of  Virginia,  the  provisions  of  the  aforesaid,  im- 
posing the  same,  are  unconstitutional  and  void.  But  the  court  is, 
;it  the  same  time,  of  opinion  that  the  validity  of  the  sixth,  eighth, 
;ind  ninth  sections  only,  of  tlie  act  in  question,  are  here  involved, 
ind  the  judgment  now  to  be  rendered  is  confined  to  those  sections, 
[ind  none  others.  ...  It  is  therefore  ordered  that  the  petitioner, 
"William  F.  Proffit,  be  discharged  from  custody. 
Lewis,  P.,  and  Lacy,  J.,  dissenting. 


GOEDON  V.  SANDEESON. 
Supreme  Judicial  Court  of  Massachusetts.     1896. 

[Reported  1G5  If  ass.  375.] 

Petition  for  a  writ  of  mandamus  to  compel  the  collector  of  taxes 
of  the  city  of  Waltham  to  receive  payment  of  a  poll  tax  assessed  upon 
the  petitioner  for  the  year  1893.  Hearing  before  Allen,  J.,  who,  at 
the  request  of  the  parties,  reported  the  case  for  the  determination 
of  the  full  court.    The  facts  appear  in  the  opinion. 

Field,  C.  J.  It  appears  that  a  poll  tax  was  duly  assessed  upon  the 
petitioner  in  the  year  1893 ;  that  his  name  was  placed  upon  the  tax 
list  which  was  committed  to  the  respondent  as  collector  of  taxes  with 
a  warrant  requiring  him  to  collect  the  taxes  upon  the  list,  and  that 
the  collector  sent  a  tax  bill  by  mail  to  the  petitioner  about  the  first 
day  of  September  in  that  year.  On  September  14  the  collector  re- 
ceived the  following  certificate :  "  City  of  Waltham,  Assessors  Office, 
Sept,  14,  1893.  To  Emory  J.  Sanderson,  Treasurer  and  Col- 
lector of  Taxes.  An  abatement  of  two  dollars  is  hereby  allowed  on 
the  tax  assessed  to  Michael  Gordon,  of  7  John  Street,  in  Ward  7,  of 
the  tax  list  of  1893.  E.  P.  Smith,  J.  F.  Davis,  a  majority  of  the 
Board  of  Assessors.'^ 

After  this,  on  November  14,  1893,  the  petitioner  tendered  to  the 
respondent  the  sum  of  two  dollars  in  payment  of  this  poll  tax,  which 
the  respondent  refused  to  receive.  The  petitioner  did  not  make  any 
application  to  the  assessors  for  an  abatement  of  the  tax,  and  has 
always  been  ready  to  pay  it.  No  cause  of  abatement  appears  on  the 
records  of  the  assessors,  and  it  is  said  that  the  only  entry  on  the 
records  of  the  assessors  is  the  word  "Abated,"  placed  against  the 
assessment  of  the  tax.  Apparently  the  object  of  the  petitioner  in 
attempting  to  pay  this  tax  is  to  obtain  a  settlement  in  the  city  of 
AValtham.    Pub.  Sts.  c.  83,  §  1,  cl.  5. 

The  counsel  for  the  petitioner  contends  that  the  respondent  can- 
not justify  his  refusal  to  receive  the  amount  of  this  tax  by  the  cer- 


GORDON    V.    SANDERSON.  33 

tificate  of  the  board  of  assessors,  because  eitber  the  assessors  hajd  no 
right  to  abate  the  tax,  or,  if  they  had,  the  record  of  the  assessors  is 
defective,  and  does  not  show  that  tlie  tax  was  lawfully  abated.  The 
statutory  provisions  concerning  the  abatement  of  taxes  are  Pub.  Sts. 
c.  11,  §§  69-77,  anl  it  is  said  that  the  present  case  is  not  within  any 
of  the  provisions  of  these  sections.  Section  7  7  of  this  chapter  was 
iirst  enacted  in  St.  1818,  c.  77.  See  St.  1879,  c.  43.  But  by  §  5, 
el.  12,  of  the  same  chapter,  which  was  taken  from  the  Gen.  Sts.  c.  11, 
§  5,  cl.  13,  and  from  Rev.  Sts.  c.  7,  §  5,  cl.  8,  "the  polls  and  any 
portion  of  the  estates  of  persons  who  by  reason  of  age,  inlirmity, 
and  poverty  are  in  the  judgment  of  the  assessors  unable  to  contribute 
fully  towards  the  public  charges,"  are  exempt  from  taxation.  If  a 
poll  tax  is  assessed  upon  any  such  person,  or  upon  a  person  not  an 
inhabitant  of  the  city  or  town,  we  think  it  is  w'ithin  the  power  of 
the  assessors  of  their  own  motion  to  abate  the  tax,  as  a  tax  which 
ought  not  to  have  been  assessed.  See  Stetson  v.  Kempton,  13  Mass, 
'.'72,  283. 

As  the  abatement  of  this  tax  was  within  the  power  of  the  assessors, 
the  regularity  of  their  action  or  the  sufficiency  of  their  record  cannot 
be  tried  in  this  proceeding  against  the  collector.  After  the  collector 
received  from  the  assessors  a  certificate  that  the  tax  had  been  abated 
by  them,  he  was  no  longer  authorized  to  collect  the  tax.  If  the 
matter  was  within  the  jurisdiction  of  the  assessors,  it  was  not  for 
him  to  inquire  into  the  regularity  of  their  action  or  the  sufficiency 
of  their  record.    Hubbard  v.  Garfield,  102  Mass.  72. 

AVe  are  of  opinion  that  the  right  of  the  assessors  to  abate  the  tax 
for  the  purpose  of  preventing  the  petitioner  from  gaining  a  settle- 
ment in  the  city  of  Waltham  cannot  be  tried  in  this  proceeding. 

Petition  dismissed. 


S-i       SAVINGS   &   LOAN   SOC.    V.   MULTNOMAH    COUNTY.        [cHAP.    U, 


CHAPTER  II. 

TAX   ON^   PEOPEETY. 


SECTION  I. 

REAL  PROPERTY. 


SAA'INGS  AND  LOAN  SOCIETY  v.  MULTNOMAH  COUNTY. 

Supreme  Court  of  the  United  States. 

[Reported  U9  V.  S.  421.'] 

Gray,  J.  This  was  a  bill  in  equity,  filed  in  the  Circuit  Court  of 
the  United  States  for  the  District  of  Oregon,  by  the  Savings  and 
Loan  Society,  a  corporation  and  citizen  of  the  State  of  California, 
against  Multnomah  County,  a  public  corporation  in  the  State  of 
Oregon,  and  one  Kelly,  the  sheriff'  and  ex  ofjicio  the  tax  collector  of 
that  county,  and  a  citizen  of  that  State,  showing  that  in  1891  and 
1892  various  persons,  all  citizens  of  Oregon,  severally  made  their 
promissory  notes  to  secure  the  payment  of  various  sums  of  money, 
with  interest,  to  the  plaintiff  at  its  office  in  the  city  of  San  Francisco 
and  State  of  California,  amounting  in  all  to  the  sum  of  $531,000; 
and,  to  further  secure  the  same  debts,  executed  to  the  plaintiff  mort- 
gages of  divers  parcels  of  land  owned  by  them  in  Multnomah  County ; 
that  the  mortgages  were  duly  recorded  in  the  office  of  the  recorder 
of  conveyances  of  that  county;  that  the  notes  and  mortgages  were 
immediately  delivered  to  the  plaintiff,  and  had  ever  since  been 
without  the  State  of  Oregon,  and  in  the  possession  of  the  plaintiff 
at  San  Francisco;  that  afterwards,  in  accordance  with  the  statute 
of  Oregon  of  October  26,  1882,  taxes  were  imposed  upon  all  the 
taxable  property  in  Multnomah  County,  including  the  debts  and 
mortgages  aforesaid ;  that,  the  taxes  upon  these  debts  and  mortgages 
not  having  been  paid,  a  list  thereof  was  placed  in  the  hands  of  the 
sheriff,  with  a  warrant  directing  him  to  collect  the  same  as  upon 
execution,  and  he  advertised  for  sale  all  the  debts  and  mortgages 
aforesaid;  and  that  the  statute  was  in  violation  of  the  Fourteenth 
Amendment  of  the  Constitution  of  the  United  States,  as  depriving 
the  plaintiff  of  its  property  without  due  process  .of  law,  and  denying 
to  it  the  equal  protection  of  the  laws.  The  bill  prayed  for  an  in- 
junction against  the  sale;  and  for  a  decree  declaring  that  the  statute 
was  contrary  to  the  provisions  of  the  Constitution  of  the  United 


HECT.  I.]        SAVINGS    &    LOAN    SOC.    V.    MULTNOMAH    COUNTY.  35 

States  and  therefore  of  no  eilect,  and  that  all  the  proceedings  before 
set  out  were  null  and  void;  and  for  further  relief. 

The  defendants  duniurred  jjenerally;  and  the  court  sustained  the 
demurrer,  and  dismissed  the  bill.  GO  Fed.  Kep.  31.  The  plaintiff 
appealed  to  this  court. 

The  ground  upon  which  the  plaintiff  seeks  to  maintain  this  suit  is 
that  the  tax  act  of  the  State  of  Oregon  of  1882,  as  applied  to  the 
mortgages,  owned  and  held  by  the  plaintiff  in  California,  of  lands 
in  Oregon,  is  contrary  to  the  Fourteenth  Amendment  of  the  Con- 
stitution of  the  United  States,  as  depriving  the  plaintiff  of  its  prop- 
erty without  due  process  of  law,  and  denying  to  it  the  equal  protec- 
tion of  the  laws. 

The  statute  in  question  makes  the  following  provisions  for  the 
taxation  of  mortgages :  By  §  1,  "  a  mortgage,  deed  of  trust,  contract 
or  other  obligation  whereby  land  or  real  property,  situated  in  no 
more  than  one  county  in  this  State,  is  made  security  for  the  pay- 
ment of  a  debt,  together  with  such  debt,  shall,  for  the  purposes  of 
assessment  and  taxation,  be  deemed  and  treated  as  land  or  real 
property.''  By  §  2,  the  mortgage,  "  together  with  such  debt,  shall 
be  assessed  and  taxed  to  the  owner  of  such  security  and  debt  in  the 
county,  city  or  district  in  which  the  land  or  real  property  affected 
by  such  security  is  situated  " ;  and  may  be  sold,  like  other  real  prop- 
erty, for  the  payment  of  taxes  due  thereon.  By  §  3,  that  person  is 
to  be  deemed  the  owner,  who  appears  to  be  such  on  the  record  of 
the  mortgage,  either  as  the  original  mortgagee,  or  as  an  assignee  by 
transfer  made  in  writing  upon  the  margin  of  the  record.  By  §  4, 
no  payment  on  the  debt  so  secured  is  to  be  taken  into  consideration 
in  assessing  the  tax,  unless  likewise  stated  upon  the  record;  and  the 
debt  and  mortgage  are  to  be  assessed  for  the  full  amount  appearing 
by  the  record  to  be  owing,  unless  in  the  judgment  of  the  assessor 
the  land  is  not  worth  so  much,  in  which  case  they  are  to  be  assessed 
at  their  real  cash  value.  By  §§  5,  6,  7,  it  is  made  the  duty  of  each 
county  clerk  to  record,  in  the  margin  of  the  record  of  any  mortgage, 
when  requested  so  to  do  by  the  mortgagee  or  owner  of  the  mortgage, 
all  assignments  thereof  and  payments  thereon ;  and  to  deliver  annu- 
ally to  the  assessor  abstracts  containing  the  requisite  information 
as  to  unsatisfied  mortgages  recorded  in  his  ofhce.  By  §  8,  a  debt 
secured  by  mortgage  of  land  in  a  county  of  this  State  "  shall,  for 
the  purposes  of  taxation,  be  deemed  and  considered  as  indebtedness 
within  this  State,  and  the  person  or  persons  owing  such  debt  shall 
be  entitled  to  deduct  the  same  from  his  or  their  assessments  in  the 
same  manner  that  other  indebtedness  within  the  State  is  deducted." 
And  by  §  9,  "no  promissory  note,  or  other  instrument  of  writing, 
which  is  the  evidence  of  a  debt  that  is  wholly  or  partly  secured  by 
land  or  real  property  situated  in  no  more  than  one  county  in  this 
State,  shall  be  taxed  for  any  purpose  in  this  State;  but  the  debt 
evidenced  thereby,  and  the  instrument  by  which  it  is  secured  shall, 
for  the  purpose  of  assessment  and  taxation,  be  deemed  and  considered 
as  land  or  real  property,  and  together  be  assessed  and  taxed  as 
hereinbefore  provided."     Oregon  Laws  of  1882,  p.   64.     All  these 


36       SAVINGS    &   LOAIs^    SOC.    V.    MULTNOMAH    COCTNTY.        [ciIAP.    II. 

sections  are  embodied  in  HilFs  Annotated  Code  of  Oregon,  §§  2730, 
2735-2738,  2T53-2756. 

The  statute  applies  only  to  mortgages  of  land  in  not  more  than 
one  county.  By  the  last  clause  of  §  3,  all  mortgages,  ''hereafter 
executed,  whereby  land  situated  in  more  than  one  county  in  this 
State  is  made  security  for  the  payment  of  a  debt,  shall  be  void." 
Tlie  mortgages  now  in  question  were  all  made  since  the  statute,  and 
were  of  land  in  a  single  county;  and  it  is  not  suggested  in  the  bill 
that  there  existed  any  untaxed  mortgage  of  lands  in  more  than  one 
county. 

The  statute,  in  terms,  provides  that  "  no  promissory  note  or  other 
instrument  in  writing,  which  is  the  evidence  of"  the  debt  secured 
by  the  mortgage,  "  shall  be  taxed  for  any  purpose  within  this  State ;" 
but  that  the  debt  and  mortgage  "shall,  for  the  purposes  of  assess- 
ment and  taxation,  be  deemed  and  treated  as  land  or  real  property*' 
in  the  county  in  which  the  land  is  situated,  and  be  there  taxed,  not 
beyond  their  real  cash  value,  to  the  person  appearing  of  record  to 
be  the  owner  of  the  mortgage. 

The  statute  authorizes  the  amount  of  the  mortgage  debt  to  be 
deducted  from  any  assessment  upon  the  mortgagor;  and  does  not 
provide  for  both  taxing  to  the  mortgagee  the  money  secured  by  the 
mortgage,  and  also  taxing  to  the  mortgagor  the  whole  mortgaged 
property,  as  did  the  statutes  of  other  States,  the  validity  of  which 
was  affirmed  in  Augusta  Bank  v.  Augusta,  36  Maine,  255,  259 ; 
Alabama  Ins.  Co.  v.  Lott,  54  Alabama,  499 ;  Appeal  Tax  Court  v. 
Sice,  50  Maryland,  302;  and  Goldgart  v.  People,  106  Illinois,  25. 

The  right  to  deduct  from  his  assessment  any  debts  due  from 
him  within  the  State  is  secured  as  we^l  to  the  mortgagee,  as  to 
the  mortgagor,  by  a  provision  of  the  statute  of  Oregon  of  October 
25,  1880  (unrepealed  by  the  statute  of  1882,  and  evidently  assumed 
by  §  8  of  this  statute  to  be  in  force),  by  which  "it  shall  be  the  duty 
of  the  assessor  to  deduct  the  amount  of  indebtedness,  within  the 
State,  of  any  person  as.sessed,  from  the  amount  of  his  or  her  taxable 
property."    Oregon  Laws  of  1880,  p.  52 ;  Hill's  Code,  §  2752. 

Taking  all  the  provisions  of  the  statute  into  consideration,  its 
clear  intent  and  effect  are  as  follows :  The  personal  obligation  of  the 
mortgagor  to  the  mortgagee  is  not  taxed  at  all.  The  mortgage  and 
the  debt  secured  thereby  are  taxed,  as  real  estate,  to  the  mortgagee, 
not  beyond  their  real  cash  value,  and  only  so  far  as  they  represent 
an  interest  in  the  real  estate  mortgaged.  The  debt  is  not  taxed 
separately,  but  only  together  with  the  mortgage;  and  is  considered 
as  indebtedness  within  the  State  for  no  other  purpose  than  to  en- 
able the  mortgagor  to  deduct  the  amount  thereof  from  the  assess- 
ment upon  him,  in  the  same  manner  as  other  indebtedness  within 
the  State  is  deducted.  And  the  mortgagee,  as  well  as  the  mortgagor, 
is  entitled  to  have  deducted  from  his  own  assessment  the  amount 
of  his  indebtedness  within  the  State. 

The  result  is  that  nothing  is  taxed  but  the  real  estate  mortgaged, 
the  interest  of  the  mortgagee  therein  being  taxed  to  him,  and  the 
rest  to  the  mortgagor.     There  is  no  double  taxation.     Nor  is  any 


SECT.   I.]  SAVINGS  &  LOAN  SOC.    V.   MULTNOMAH   COUNTY.  37 

such  diseriminatiou  made  between  mortgagors  and  mortgagees,  or 
between  resident  and  non-resident  mortgagees,  as  to  deny  to  the 
latter  the  equal  protection  of  the  laws. 

No  question  between  the  mortgagee  and  the  mortgagor,  arising 
out  of  tlie  contract  between  them,  in  regard  to  tlie  payment  of  taxes, 
or  otherwise,  is  presented  or  can  be  decided  upon  this  record. 

The  case,  then,  reduces  itself  to  the  question  whether  this  tax 
act,  as  applied  to  mortgages  owned  by  citizens  of  other  States  and 
in  their  possession  outside  of  the  State  of  Oregon,  deprives  them  of 
their  property  without  due  process  of  law. 

By  the  law  of  Oregon,  indeed,  as  of  some  other  States  of  the 
Union  a  mortgage  of  real  property  does  not  convey  the  legal  title 
to  the  mortgagee,  but  creates  only  a  lien  or  incumbrance  as  security 
for  the  mortgage  debt;  and  the  right  of  possession,  as  well  as  the 
legal  title,  remains  in  the  mortgagor,  both  before  and  after  con- 
dition broken,  until  foreclosure.  Oregon  General  Laws  of  1843- 
1872,  §  323;  Hill's  Code,  §  326;  Anderson  v.  Baxter,  4  Oregon,  105, 
110;  Semple  v.  Bank  of  British  Columbia,  5  Sawyer,  88,  3!J4;  Teal 
V.  Walker,  111  U.  S.  242;  Sellwood  v.  Gray,  11  Oregon,  534; 
Watson  V.  Dundee  Mortgage  Co.,  12  Oregon,  474;  Thompson  r. 
Marshall,  21  Oregon,  171;  Adair  v.  Adair,  22  Oregon,  115. 

Notwithstanding  this,  it  has  been  held,  both  by  the  Supreme  Court 
of  the  State,  and  by  the  Circuit  Court  of  the  United  States  for  the 
District  of  Oregon,'  that  the  State  has  the  power  to  tax  mortgages, 
though  owned  and  held  by  citizens  and  residents  of  other  States,  of 
lands  in  Oregon.  Mumford  v.  Sewell  11  Oregon,  67;  Dundee 
Mortgage  Co.  -o.  School  District,  10  Sawyer,  52;  Crawford  v.  Linn 
County,  11  Oregon,  482;  Dundee  Mortgage  Co.  v.  Parrish,  11 
Sawyer,  92;  Poppleton  v.  Yamhill  County,  18  Oregon,  377,  383; 
Savings  &  Loan  Society  v.  Multnomah  County,  60  Fed.  Eep.  31. 

In  Mumford  v.  Sewell,  Judge  Waldo,  delivering  the  opinion  of 
the  court,  said :  "  All  subjects,  things  as  well  as  persons,  over  wliich 
the  power  of  the  State  extends,  may  be  taxed."  "A  mortgage,  as 
such,  is  incorporeal  property.  It  may  be  the  subject  of  taxation." 
"  Concede  that  the  debt  accompanies  the  respondent's  person  and 
is  without  the  jurisdiction  of  the  State.  But  the  security  she  holds 
is  Oregon  security.  It  cannot  be  enforced  in  any  other  jurisdiction. 
It  is  local  in  Oregon  absolutely  as  the  land  which  it  binds."  "  Since 
the  power  of  the  State  over  the  mortgage  is  as  exclusive  and  com- 
plete as  over  the  land  mortgaged,  the  mortgage  is  subject  to  taxa- 
tion by  the  State,  unless  there  is  constitutional  limitation  to  the 
contrary."     11  Oregon,  68,  69. 

"  In  "Mumford  v.  Sewell,"  said  Judge  Deady,  in  Dundee  Mortgage 
Co.  V.  School  District,  "the  court  held  that  a  mortgage  upon  real 
property  in  this  State  is  taxable  by  the  State,  without  reference  to 
the  domicile  of  the  owner,  or  the  situs  of  the  debt  or  note  secured 
thereby.  And  this  conclusion  is  accepted  by  this  court  as  the  law  of 
this  case.  Nor  do  I  wish  to  be  understood  as  having  any  doubt  about 
the  soundness  of  the  decision.  A  mortgage  upon  real  property  in 
this  State,  whether  considered  as  a  conveyance  of  the  same,  giving 
the  creditor  an  interest  in  or  right  to  the  same,  or  merely  a  contract 


38       SAVINGS    <fe   LOAN    SOC.    V.    MULTNOMAH   COUNTY.        [CHAP.    IL 

giving  him  a  lien  thereon  for  his  debt  and  the  power  to  enforce  the 
payment  thereof  by  the  sale  of  the  premises,  is  a  contract  affecting 
real  property  in  the  State,  and  dependent  for  its  existence,  main- 
tenance and  enforcement  upon  the  laws  and  tribunals  thereof,  and 
may  be  taxed  hefe  as  any  other  interest  in,  riglit  to,  or  power  over 
land.  And  the  mere  fact  that  the  instrument  has  been  sent  out 
of  the  State  for  the  time  being,  for  the  purpose  of  avoiding  taxation 
thereon  or  othenvise,  is  immaterial/'     10  Sawyer,  63,  64. 

The  authority  of  every  State  to  tax  all  property,  real  and  personal, 
within  its  jurisdiction,  is  unquestionable.  McCuUoch  v.  Maryland, 
4  Wheat.  316,  429.  Personal  property,  as  this  court  has  declared 
again  and  again,  may  be  taxed,  either  at  the  domicil  of  its  owner, 
or  at  the  place  where  the  property  is  situated,  even  if  the  owner 
is  neither  a  citizen  nor  a  resident  of  the  State  which  imposes  the 
tax.  Tappan  v.  Merchants'  Bank,  19  Wall.  490,  499 ;  State  Eail- 
road  Tax  cases,  92  U.  S.  575,  607;  Coe  v.  Errol,  116  U.  S.  517,  524; 
Pullman's  Car  Co.  v.  Pennsylvania,  141  U.  S.  18,  22,  27.  The  State 
may  tax  real  estate  mortgaged,  as  it  may  all  other  property  within 
its  jurisdiction,  at  its  full  value.  It  may  do  this,  either  by  taxing 
the  whole  to  the  mortgagor,  or  by  taxing  to  the  mortgagee  the  in- 
terest therein  represented  by  the  mortgage,  and  to  the  mortgagor 
the  remaining  interest  in  the  land.  And  it  may,  for  the  purposes 
of  taxation,  either  treat  the  mortgage  debt  as  personal  property,  to 
be  taxed,  like  other  choses  in  action,  to  the  creditor  at  his  domicil ; 
or  treat  the  mortgagee's  interest  in  the  land  as  real  estate,  to  be 
taxed  to  him,  like  other  real  property,  at  its  situs.  Firemen's  Ins. 
Co.  V.  Commonwealth,  137  Mass.  80,  81 ;  State  v.  Eunyon,  12  Vroom 
(41  N.  J.  Law),  98,  105;  Darcy  v.  Darcy,  22  Vroom  (51  N.  J. 
Law),  140,  145;  People  v.  Smith,  88  X.  Y.  576,  585;  Common 
Council  V.  Assessors,  91  Michigan,  78,  92. 

The  plaintiff  much  relied  on  the  opinion  delivered  by  Mr.  Justice 
Field  in  Cleveland,  Painesville  &  Ashtabula  Railroad  v.  Pennsyl- 
vania, reported  under  the  name  of  Case  of  the  State  Tax  on  Foreign- 
held  Bonds,  15  Wall.  300,  323.  It  becomes  important  therefore 
to  notice  exactly  what  was  there  decided.  In  that  case,  a  railroad 
company,  incorporated  both  in  Ohio  and  in  Pennsylvania,  had  issued 
bonds  secured  by  a  mortgage  of  its  entire  road  in  both  States ;  and 
the  tax  imposed  by  the  State  of  Pennsylvania,  which  was  held  by 
a  majority  of  this  court  to  be  invalid,  was  a  tax  upon  the  interest 
due  to  the  bondholders  upon  the  bonds,  and  was  not  a  tax  upon 
the  railroad,  or  upon  the  mortgage  thereof,  or  upon  the  bondholders 
solely  by  reason  of  their  interest  in  that  mortgage.  The  remarks 
in  the  opinion,  supported  by  quotations  from  opinions  of  the  Su- 
preme Court  of  Pennsylvania,  that  a  mortgage,  being  a  mere  security 
for  the  debt,  confers  upon  the  holder  of  the  mortgage  no  interest 
in  the  land,  and  when  held  by  a  non-resident  is  as  much  beyond 
the  jurisdiction  of  the  State  as  the  person  of  the  owner,  went  be- 
yond what  was  required  for  the  decision  of  the  case,  and  cannot  be 
reconciled  with  other  decisions  of  this  court  and  of  the  Supreme 
Court  of  Pennsylvania. 


SECT.   I.]  SAVINGS  &  LOAN  SOC.   V.   MULTNOMAH    COUNTY.  39 

This  court  has  always  held  that  a  mortgage  of  real  estate,  made 
in  good  faith  by  a  debtor  to  secure  a  private  debt,  is  a  conveyance 
of  such  an  interest  in  the  land,  as  will  defeat  the  priority  given 
to  the  United  states  by  act  of  Congress  in  tlie  distribution  of  the 
debtor's  estate.  United  States  v.  Hooe,  3  Cranch,  73;  Tlielusson 
V.  Smith,  2  Wheat.  3iJ6,  426;  Conard  v.  Atlantic  Ins.  Co.,  1  Pet. 
386,  441. 

In  Hutchins  v.  King,  1  Wall.  53,  58,  Mr.  Justice  Field,  delivering 
the  opinion  of  the  court,  said  that  "  the  interest  of  the  mortgagee 
is  now  generally  treated  by  the  courts  of  law  as  real  estate,  only  so 
far  as  it  may  be  necessary  for  tlie  protection  of  the  mortgagee  and 
to  give  him  the  full  benefit  of  his  security,"  See  also  U'aterman 
V.  Mackenzie,  138  U.  S.  252,  258.  If  the  law  treats  the  mortgagee's 
interest  in  the  land  as  real  estate  for  his  protection,  it  is  not  easy  to 
see  why  the  law  should  forbid  it  to  be  treated  as  real  estate  for  the 
purpose  of  taxation. 

The  leading  quotation  in  15  Wall.  323,  from  the  Pennsylvania 
Keports,  is  this  general  statement  of  Mr.  Justice  Woodward :  "  The 
mortgagee  has  no  estate  in  the  land,  more  than  the  judgment 
creditor.  Both  have  liens  upon  it,  and  no  more  than  liens."  Wit- 
mer's  Appeal,  45  Penn.  St.  455,  463.  Yet  the  same  judge,  three 
years  later,  treated  it  as  unquestionable  that  a  mortgage  of  real 
estate  in  Pennsylvania  was  taxable  there,  without  regard  to  the  domi- 
cil  of  the  mortgagee.  Maltby  v.  Eeading  &  Columbia  Eailroad, 
52  Penn.  St.  140,  147. 

The  effect  of  a  mortgage  as  a  conveyance  of  an  interest  in  real 
estate  in  Pennsylvania  has  been  clearly  brought  out  in  two  judg- 
ments delivered  by  Mr.  Justice  Strong,  the  one  in  the  Supreme 
Court  of  Pennsylvania,  and  the  other  in  this  court. 

Speaking  for  the  same  judges  who  decided  Witmer's  Appeal, 
above  cited,  and  in  a  case  decided  less  than  two  months  previously, 
reported  in  the  same  volume,  and  directly  presenting  the  question 
for  adjudication,  Mr.  Justice  Strong  said,  of  mortgages  of  real 
estate :  "  They  are  in  form  defeasible  sales,  and  in  substance  grants 
of  specific  security,  or  interests  in  land  for  the  purpose  of  security. 
Ejectment  may  be  maintained  by  a  mortgagee,  or  he  may  hold  pos- 
session on  the  footing  of  ownership,  and  with  all  its  incidents.  And 
though  it  is  often  decided  to  be  a  security  or  lien,  yet,  so  far  as  it  is 
necessary  to  render  it  ell'ective  as  a  security,  there  is  always  a  recog- 
nition of  the  fact  that  it  is  a  transfer  of  the  title."  Britton's  Ap- 
peal, 45  Penn.  St.  172,  177,  178.  It  should  be  remembered  that  in 
the  courts  of  the  State  of  Pennsylvania,  for  want  of  a  court  of 
chancery,  an  equitable  title  was  always  held  sufficient  to  sustain  an 
action  of  ejectment.  Simpson  v.  Amnions,  1  Binney,  175;  Young- 
man  V.  Elmira  &  Williamsport  Eailroad,  65  Penm  St.  278,  285, 
and  cases  there  cited. 

Again,  in  an  action  of  ejectment,  commenced  in  the  Circuit 
Court  of  the  United  States  for  the  District  of  Pennsylvania,  ^Ir. 
Justice  Strong,  delivering  the  imanimous  opinion  of  this  court, 
said :  "  It  is  true  that  a  mortgage  is  in  substance  but  a  security  for 


40       SAVINGS    ct    LOAN    SOC.    V.    :MULTNOMAn    COUNTY.        [ciIAP.    II. 

a  debt,  or  an  obligation,  to  whicli  it  is  collateral.  As  between  the 
mortgagor  and  all  others  than  the  mortgagee,  it  is  a  lien,  a  security, 
and  not  an  estate.  But  as  between  the  parties  to  the  instrument,  or 
their  privies,  it  is  a  grant  which  operates  to  transmit  the  legal  title 
to  the  mortgagee,  and  leaves  tlie  mortgagor  only  a  right  to  redeem." 
"  Courts  of  equity,"  he  went  on  to  say,  "  as  fully  as  courts  of  law, 
have  always  regarded  the  legal  title  to  be  in  the  mortgagee  until 
redemption,  and  bills  to  redeem  are  entertained  upon  the  principle 
that  the  mortgagee  holds  for  the  mortgagor  when  the  debt  secured 
by  the  mortgage  has  been  paid  or  tendered.  And  such  is  the  law  of 
Pennsylvania.  There,  as  elsewhere,  the  mortgagee,  after  breach 
of  the  condition,  may  enter  or  maintain  ejectment  for  the  land." 
Applying  these  principles,  it  was  held  that  one  claiming  under  the 
mortgagor,  having  only  an  equitable  title,  could  not  maintain  an 
action  of  ejectment  against  one  in  possession  under  the  mortgagee, 
while  the  mortgage  remained  in  existence,  or  until  there  had  been 
a  redemption ;  because  an  equitable  title  would  not  sustain  an  action 
of  ejectment  in  the  courts  of  the  United  States.  Brobst  v.  Brock, 
10  WaU.  519,  529,  530. 

In  a  later  case  in  Pennsylvania,  Chief  Justice  Agnew,  upon  a 
full  review  of  the  au!horities  in  that  State,  said :  ''  Ownership  of 
the  debt  carries  with  it  that  of  the  mortgage;  and  its  assignment, 
or  succession  in  the  event  of  death,  vests  the  right  to  the  mortgage 
in  the  assignee  or  the  personal  representative  of  the  deceased  owner. 
But  there  is  a  manifest  difference  between  the  debt,  which  is  a  mere 
chose  in  action,  and  the  land  which  secures  its  payment.  Of  the 
former  there  can  be  no  possession,  except  that  of  the  writing,  which 
evidences  the  obligation  to  pay ;  but  of  the  latter,  the  land  or  pledge, 
there  may  be.  The  debt  is  intangible,  the  land  tangible.  The 
mortgage  passes  to  the  mortgagee  the  title  and  right  of  possession 
to  hold  till  payment  shall  be  made."  Tryon  v.  Munson,  77  Penn. 
St.  250,  262. 

In  Kirtland  v.  Hotchkiss,  42  Conn.  426,  affirmed  by  this  court 
in  100  U.  S.  491,  the  point  adjudged  was  that  debts  to  persons  re- 
siding in  one  State,  secured  by  mortgage  of  land  in  another  State, 
might,  for  the  purposes  of  taxation,  be  regarded  as  situated  at  the 
domicil  of  the  creditor.  But  the  question,  whether  the  mortgage 
could  be  taxed  there  only,  was  not  involved  in  the  case,  and  was  not 
decided,  either  by  the  Supreme  Court  of  Connecticut  or  by  this  court. 

In  many  other  cases  cited  by  the  appellant,  there  was  no  statute 
expressly  taxing  mortgages  at  the  situs  of  tlie  land ;  and,  although 
the  opinions  in  some  of  them  took  a  wider  range,  the  only  question 
in  jurlinnent  in  any  of  them  was  one  of  the  construction,  not  of  the 
constitutionality,  of  a  statute  —  of  the  intention,  not  of  the  power, 
of  the  legislature.  Such  were :  Davenport  v.  Mississippi  &  Missouri 
Eailroad,  12  Iowa,  539;  Latrobe  v.  Baltimore,  19  Maryland,  13; 
People  V.  Eastman,  25  California,  601 ;  State  v.  Earl,  1  Nevada, 
394;  Arapahoe  v.  Cutter,  3  Colorado,  349;  People  v.  Smith,  88 
N.  Y.  576 ;  Grant  v.  Jones,  39  Ohio  St.  506 ;  State  v.  Smith,  68 


SECT. 


,  ]  TADDELL    V.    SKW    \UKl<..  41 


Mississippi,  7!i ;  Holland  v.  Silver  Buw  Commissioners,  15  Mon- 
tana, 4G0. 

The  statute  of  Oregon,  the  constitutionality  of  which  is  now- 
drawn  in  question,  expressly  forbids  any  taxation  of  the  promisson- 
note,  or  other  instrument  of  writing,  which  is  the  evidence  of  the 
debt  secured  by  the  mortgage;  and,  with  equal  distinctness,  pro- 
vides for  the  taxation,  as  real  estate,  of  tlie  mortgage  interest  in  the 
land.  Although  the  right  which  the  mortgage  transfers  in  the 
land  covered  thereby  is  not  the  legal  title,  but  only  an  equitable 
interest  and  by  way  of  security  for  the  debt,  it  appears  to  us  to  be 
clear  upon  principle,  and  in  accordance  with  the  weight  of  authority, 
tiiat  this  interest,  like  any  other  interest  legal  or  equitable,  may  be 
taxed  to  its  owner  (whether  resident  or  non-resident)  in  the  State 
where  the  land  is  situated,  without  contravening  any  provision  of 
the  Constitution  of  the  United  States.  Decree  affirmed. 

Mr.  Justice  Harlax  and  Mr.  Justice  White  dissented. 

Mr.  Justice  McKenma,  not  having  been  a  member  of  the  court 
when  this  case  was  argued,  took  no  part  in  the  decision. 


PADDELL  V.  NEW  YORK. 
Supreme  Court  of  the  United  States.     1908. 

[Reported  211  f7. -S.  446.] 

Holmes,  J.  This  is  a  bill  to  prevent  the  City  of  New  York  from 
completing  the  levy  of  a  tax  and  thereby  creating  a  cloud  upon  the 
plaintiff's  title.  The  plaintiff  owns  lots  numbered  592,  594  and  596 
on  Seventli  Avenue,  subject  to  mortgages  for  $70,000  and  $-45,000, 
given  by  him.  The  premises  have  been  valued,  as  the  first  step  to- 
ward taxation,  at  $160,000,  and  it  is  alleged  upon  information  and 
belief  that  this  valuation  makes  no  deduction  for  the  mortgages.  The 
ground  of  the  bill,  so  far  as  it  is  before  us,  is  that  the  tax  if  completed 
will  be  contrary  to  the  Fourteenth  Amendment.  Some  criticism 
might  be  made  and  was  made  on  the  form  of  the  allegations,  but  we 
will  take  them  as  presenting  what  we  believe  they  were  intended  to 
present,  the  question  whether,  consistently  wath  the  Constitution  of 
the  United  States,  a  man  owning  land  subject  to  a  mortgage  can 
be  taxed  for  the  full  value  of  the  land,  while  at  the  same  time  the 
mortgage  debt  is  not  deducted  from  his  personal  estate.  A  demurrer 
to  th,e  bill  was  sustained  by  the  courts  below. 

The  plaintiff  has  many"  difficulties  in  his  way.  In  the  first  place 
the  mode  of  taxation  is  of  long  standing,  and  upon  questions  of 
constitutional  law  the  long  settled  habits  of  the  community  play  a 
part  as  well  as  grammar  and  logic.  If  we  should  assume  that,  eco- 
nomically speaking,  the  present  system  really  taxes  two  persons  for 
the  same  thing,  the  fact  that  the  system  has  been  in  force  for  a  very 
long  time  is  of  itself  a  strong  reason  against  the  belief  that  it  has 
been  overthrown  by  the  Fourteenth  Amendiuent,  and  for  leaving  any 
improvement  that  may  be  desired  to  tlie  legislature. 

The  weight  of  the  plaintiff's  argument  is  that  he  is  taxed  for  what 


42  PADDELL  V.    NEW  YORK.  [CHAP.  n. 

he  does  not  own.    The  bill  seems  to  have  been  drawn  on  the  dominant 
notion  of  a  right  attached  specifically  to  the  mortgaged  property, 
tliat  is  to  say,  the  notion  that  the  property  represents  so  many  units 
of  value,  from  which  the  mortgage  subtracts  so  many,  leaving  only 
the  remainder  subject  to  be  taxed;  and  this  is  the  plaintiff's  view. 
But  tliere  is  a  subordinate  averment  that  the  plaintiff  has  not  been 
assessed  for  taxes  in  respect  of  personal  property,  qnd  the  allegation 
seems  to  convey,  by  indirection,  that  no  deduction  of  the  mortgage 
debt  has  been  made  from  personal  property,  and  to  admit  that  such 
a  deduction  would  have  set  the  city  right.    As  to  the  former  notion, 
it  will  be  observed  that  the  mortgages  were  given  by  the  plaintiff, 
and  therefore  charged  him,  as  well  as  his  land.     If  he  should  die, 
by  the  law  of  New  York  his  personal  property  would  have  to  exon- 
erate the  realty,  so  far  as  it  would  go.     If  he  lives,  and  remains  sol- 
vent, the  chances  are  that  he  will  pay  the  mortgages  out  of  personalty. 
Therefore,  the  true  deduction  is  not  the  amount  of  the  mortgages, 
but  the  speculative  chance  that  the  land  may  have  to  be  sold  for  the 
(jebt  —  a  chance  that  would  be  insured  at  different  rates  to  different 
persons.     The  other  theory  regards  the  mortgage  debt  as  a  deduc- 
tion from  total  riches,  to  be  compensated  by  an  allowance  to  them 
indifferently,  either  in  the  valuation  of  the  land  or  by  a  deduction 
from  personal  estate.    And  this  logically  leads  to  the  conclusion  that 
no  scheme  of  taxation  is  constitutional  that  does  not  make  allowance 
for  all  obligations  and  debts;  a  conclusion  that  the  plaintiff  seems 
to  accept,  while  he  does  not  make  it  plain  that  he  does  not  receive 
both  in  law  and  in  fact  such  an  allowance  by  a  deduction  of  debts 
from  personal  estate. 

It  cannot  matter  to  the  plaintiff's  argument  whether  the  obliga- 
tion is  directed  to  a  specific  object  or  to  the  whole  mass  of  objects 
owned  by  the  party  bound.  In  the  one  case,  as  much  as  in  the  other, 
the  obligation  will  take  certain  units  of  value  from  his  riches,  when 
under  the  compulsion  of  the  law  it  is  performed.  But  it  is  an  amaz- 
ing proposition  of  constitutional  law  that  the  law  cannot  fix  its  eye 
on  tangibles  alone  and  tax  them  by  present  ownership  without  regard 
to  obligations  that,  when  performed,  would  make  some  of  them  change 
hands ;°  for  instance,  that  under  the  Fourteenth  Amendment  a  man 
having  a  thousand  sheep  as  his  only  property  could  not  be  taxed  for 
their  full  value  without  allowance  for  an  unsecured  debt  of  five  thou- 
sand dollars,  even  if  his  creditors  should  be  left  untaxed,  a  matter 
that  hardly  would  concern  him.  Bell's  Gap  R.  R.  Co.  v.  Pennsyl- 
vania, 134  U.  S.  332,  237 ;  Merchants'  &  Manufacturers'  Nat.  Bank 
V.  Pennsylvania,  167  IT.  S.  461,  464;  People  v.  Barker,  155  X.  Y. 
330,  333.  Undoubtedly  he  would  be  taxed  for.  more  than  he  owned 
if  his  total  riches  were  computed  on  the  footing  that  the  law  would 
keep  its  promise  and  make  him  pay,  and  that  what  would  be  done 
should  be  treated  as  done.  If  he  owned  other  property,  still  there 
would  be  the  chance  that  the  sheep  might  be  seized  on  execution,  and, 
a.s  we  have  said,  the  liability  of  the  mortgaged  land  is  no  more,  al- 
though the  chance  may  be  greater.  It  is  a  sufficient  answer  to  say 
that  you  cannot  carry  a  constitution  out  with  mathematical  nicety 


SECT.    I.]  PADDELL    V.    NEW    YORK.  43 

to  logical  extremes.  If  you  could,  we  never  should  have  heard  of  the 
police  power.  And  this  is  still  more  true  of  taxation,  which  in  most 
conmiunities  is  a  long  way  otl  from  a  logical  and  cohertMit  theory. 
And  it  may  perhaps  be  doubted  whether  there  is  even  a  logical  objec- 
tion to  the  sovereign  power  giving  notice  to  all  persons  who  may 
acquire  propert}^  within  its  domain  that  when  it  comes  to  tax  it  will 
not  look  beyond  tlie  tangible  thing,  and  that  those  who  buy  it  must 
buy  it  subject  to  that  risk. 

The  plaintiff's  contention  that  the  mortgage  must  be  deducted 
from  the  land,  whether  the  mortgage  is  taxed  or  not,  stated  a  little 
differently,  is  that  he  was  entitled  to  an  apportionment  of  the  tax  to 
his  interest,  and  that  if  the  title  to  a  lot  is  split  up  the  government 
cannot  tax  it  as  a  whole.  To  this  we  cannot  agree,  although  it  should 
be  mentioned  that  the  Greater  New  York  Charter  permits  the  owner 
of  any  interest  to  redeem  it  separately.  Sec.  920.  We  have  assumed 
so  far  that  the  tax  on  this  real  estate  is  a  debt  that  might  be  collected 
by  a  personal  suit  against  the  plaintiff.  As  a  matter  of  fact  it  is  not 
collected  in  that  way  and  we  gather  from  what  was  said  and  admitted 
at  the  argument  that  it  is  doubtful  at  least  whether  such  an  action 
would  lie.  See  Durant  v.  Albany  County,  26  Wend.  66;  City  of 
Eochester  v.  Gleichauf,  82  X.  Y.  Supp.  750.  Suppose  that  the  tax 
law  should  operate  only  in  rem,  against  a  lot  defined  by  the  limits 
of  a  separate  title,  and  should  simply  give  notice  by  sufficient  means 
to  all  the  world  that  it  would  be  sold  unless  within  a  certain  time 
some  party  in  interest  should  see  fit  to  pay  a  certain  sum.  Notwith- 
standing the  position  of  the  plaintiff,  it  cannot  be  doubted  that  such 
a  proceeding  would  be  as  valid  as  the  imposition  of  a  personal  liabil- 
ity upon  individuals  according  to  their  interest.  See  Witherspoon 
V.  Duncan,  4  Wall.  210,  217 ;  Castillo  v.  McConnico,  168  U.  S.  674, 
681,  682.  But  the  notion  of  a  proceeding  in  rem  is  at  the  bottom 
of  the  usual  tax  on  land,  even  where,  as  in  Massachusetts,  there  is  a 
personal  liability  superadded.  This  is  shown  by  the  doctrine  that  a 
valid  tax  sale  cuts  off  all  titles  and  starts  a  new  one.  Hefner  r. 
Northwestern  Life  Ins.  Co.,  123  U.  S.  747,  751 ;  Emery  v.  Boston 
Terminal  Co.,  178  Massachusetts,  172,  184.  Of  course  there  is  no 
question  of  allowances  or  deductions  upon  a  proceeding  in  rem.  All 
interests  are  proceeded  against  at  once. 

If  there  is  no  personal  liability  in  New  York  the  levy  of  a  tax  is  a 
proceeding  in  rem,  whatever  requirements  may  be  made  for  notice 
by  naming  parties  in  interest,  and  even  if  naming  them  is  a  condi- 
tion to  the  validity  of  the  tax.  Indeed,  it  may  be  assumed  that 
primarily  it  is  such  a  proceeding  in  any  event,  and  as  a  proceeding 
in  rem  might  be  sustained,  even  if  the" personal  liability  failed.  A 
tax  on  special  interests  is  not  unknown,  Baltimore  Shipbuilding  & 
Dry  Dock  Co.  v.  Baltimore,  195  U.  S.  375,  381,  but  the  usual  course 
is  to  tax  the  land  as  a  whole,  and  that  we  understand  to  be  the  way 
in  New  York.  "In  all  cases  the  assessment  shall  be  deemed  as  against 
the  real  property  itself,  and  the  property  itself  shall  be  holdon  and 
liable  to  sale  for  anv  tax  levied  upon  it."  Laws  of  1902,  c.  171,  §  1. 
See  Greater  New  York  Charter  of  1901,  §§  1017,  1027. 


44  TIDE-WATER  PIPE  LINE   CO.    V.   BEEEY.  [CHAP.   II. 

More  might  be  said,  but  we  will  add  only  that  while  in  order  to 
meet  the  plaintiff's  arguments  we  have  taken  his  bill  as  presenting 
the  question  that  we  believe  it  was  intended  to  present,  the  assump- 
tion hardly  could  be  made  if  our  opinion  otherwise  was  on  his  side. 
It  does  not  appear  that  he  has  not  received  an  allowance  for  his 
mortgage  debt  except  by  a  conjectural  inference.  Among  the  matters 
that  we  do  not  consider  is  whether  the  plaintiff  has  any  remedy  ex- 
cept proceedings  for  an  abatement,  when  he  admits  that  he  was 
liable  to  a  tax  and  disputes  only  the  amount. 

Judgment  affirmed. 


TIDE-WATER  PIPE  LINE  CO.  v.  BERRY. 
CouET  OF  Errors  axd  Appeals  of  New  Jersey.     1891. 

[Reported  53  N.  J.  L.  212.] 

Depue,  J.  The  prosecutor,  a  foreign  corporation  organized  under 
the  laws  of  Pennsylvania,  is  the  owner  of  an  iron  pipe  line,  used  for 
carrying  crude  petroleum  from  McKean  County,  Pennsylvania,  to 
the  Kill  von  Kull,  at  Bayonne,  in  this  State.  Its  principal  office 
is  at  Bayonne,  in  the  county  of  Hudson,  where  the  business  of  the 
company  is  carried  on. 

The  prosecutor  was  taxed  for  the  year  1887  by  the  township  of 
Woodbridge  for  seven  miles  of  pipe  laid  in  that  township,  extending 
across  the  township  from  Raritan  township  to  the  Rahway  river. 

The  tax  was  assessed  as  a  tax  upon  lands,  under  the  second  sec- 
tion of  the  General  Tax  act  of  April  11,  1866.    Rev.,  p.  1150. 

The  prosecutor  was  assessed  and  paid  a  tax  under  the  act  of  April 
18,  1884,  entitled  "An  act  to  provide  for  the  imposition  of  State 
taxes  upon  certain  corporations  and  for  the  collection  thereof." 
Rev.  Sup.,  p.  1016. 

Taxation  under  the  act  of  1884  was  designed  to  provide  revenue 
for  the  state.  The  tax  laid  by  that  act  is  a  franchise  tax  imposed 
for  the  privilege  of  transacting  busi-.oss  in  this  State.  Evening 
Journal  Association  v.  State  Board,  18  Vroom,  36 ;  Trenton  Savings 
Fund  V.  Richards,  23  Id.  156;  Standard  Underground  Cable  Co. 
V.  The  Attorney  General,  1  Dick.  Ch.  Rep.  270.  The  taxes  imposed 
by  the  General  Tax  act  of  1866  (Rep.,  p.  1150)  are  laid  upon  prop- 
erty to  provide  revenue  for  local  purposes.  Both  schemes  of  taxation 
apply  as  well  to  foreign  as  to  domestic  corporations,  and  the  act  of 
1866,  taxing  property,  has  not  been  superseded  by  the  act  of  1884, 
imposing  a  tax  upon  franchises. 

The  principal  contention  is,  that  the  property  taxed  is  not  real 
estate  within  the  meaning  of  the  third  section  of  the  act  of  1866. 
If  it  be  personalty,  the  prosecutor  was  taxable  for  it  at  Bayonne, 
where  its  principal  office  is,  pursuant  to  section  7  of  the  act  of  1866. 
If  it  be  lands,  within  the  meaning  of  the  act  of  1866,  it  was  lawfully 
assessed  under  section  6  in  the  township  where  the  property  is 
situated. 


SECT.    I.]  TIDE-WATEB    PIPE    LINE    CO.    V.    BEKUY.  45 

The  act  of  1866  is  a  general  law  for  the  taxation  of  property. 
In  tlie  second  section  it  is  enacted  tliat  all  real  and  personal  estate 
within  this  State,  whether  owned  by  individuals  or  by  corporations, 
shall  be  liable  to  taxation  at  the  full  and  actual  value  thereof. 

The  fourtli  section  defines  what  property,  rights  and  credits  in 
the  nature  of  personalty  shall  be  comprised  under  the  term  "  per- 
sonal estate."  Section  3  declares  that  the  term  "  real  estate  "  in  the 
act  '"'shall  be  construed  to  include  all  lands,  all  water  power  thereon 
or  appurtenant  thereto,  and  all  buildings  or  erections  thereon  or 
aOixed  to  the  same,  trees  and  underwood  growing  thereon,  and  all 
mines,  quarries,  peat  and  marl  beds,  and  all  fisheries." 

The  prosecutor  acquired  a  right  to  lay  and  maintain  its  pipe  upon 
lands  of  private  owners  by  a  deed  of  grant  under  seal.  The  opera- 
tive words  of  conveyance  are,  that  the  grantor  "grants  a  right  of 
way  over  and  through  lands  in  Middlesex  County,  for  the  purpose 
of  constructing  from  time  to  time  one  line  of  iron  pipe  for  the 
transportation  of  petroleum,  in  such  manner  as  said  grantee  may 
deem  necessary,  with  free  ingress  and  egress  to  construct,  operate, 
maintain,  and  from  time  to  time  repair  and  remove  the  same  in 
such  manner  as  may  be  desired."  Under  these  grants,  which  contain 
apt  words  to  create  an  estate  in  fee,  the  prosecutor  acquired  an 
interest  in  the  soil  and  a  right  of  possession  upon  the  terms  and 
subject  to  the  conditions  expressed  in  the  grant,  and  the  pipe  line 
is  permanently  affixed  in  the  ground  from  two  and  a  half  to  three 
feet  below  the  surface.  The  deeds  provide  "that  the  pipe  shall  be 
so  laid  as  not  to  interfere  with  the  usual  cultivation  of  the  premises, 
nor  with  any  buildings  thereon,  and  tliat  all  actual  damage  done  to 
crops,  timber  or  otherwise,  by  the  construction  or  operation  of  said 
pipe  line,  shall  be  paid  for  in  full  by  the  grantee." 

The  fact  that  the  grantor  retains  the  surface  for  cultivation  does 
not  exclude  the  taxation  of  the  prosecutor  for  its  right  and  estate 
therein.  Under  the  statute  of  43  Eliz.,  ch.  2,  which  laid  a  land  tax 
on  the  occupier,  it  was  held  that  a  water  company  laying  its  pipes 
below  the  surface  under  a  grant  was  ratable  for  the  occupation  of 
lands  below  the  surface  of  the  soil  by  its  pipes,  though  another  per- 
son was  rated  for  the  herbage.  Eex  v.  Chelsea  Water  Works,  5  Barn. 
&  Ad.  155.  Under  a  tax  law  identical  with  the  third  section  of  the 
act  of  1866,  the  Court  of  Appeals  of  New  York  held,  that  under  the 
definition  of  "land,"  as  contained  in  the  act,  one  person  may  be 
taxed  as  owTier  of  the  foe  and  another  for  structures  thereon  or 
minerals  and  quarries  therein.  Smith  t'.  The  Mayor  of  New  York, 
68  N.  Y.  553.  Nor  does  the  reservation  by  the  grantor  of  power 
to  revoke  the  grant  for  violation  of  the  terms  of  the  grant  detract 
from  the  grantee's  estate.  The  reservation  is  in  the  nature  of  a 
right  of  re-entry  for  condition  broken.  The  estate  granted  subsists 
until  entry  be  made  for  condition  broken.  People,  ex  rel.  Muller 
V.  Board  of  Assessors,  93  N.  Y.  308. 

The  particulars  enumerated  in  section  3  as  property  taxable  as 
real  estate  and  at  the  place  and  manner  in  which  lands  are  taxable, 
comprise  no  right  or  interest  that  by  the  common  law  would  not  be 
embraced  in  the  term  "  land."    The  act  evidently  contemplates  that 


46  CENTRAL   EAILROAD   CO.    V.   JERSEY    CITY.  [ciIAP.    U. 

such  rights  and  interests,  when  separated  in  ownership  from  the 
fee,  may  be  taxed  to  the  owner  thereof  as  distinguished  from  the 
owner  of  the  fee  in  the  soil.  The  courts  of  New  York  have  so  con- 
strued their  statute,  and  have  held  that  the  statute  means  that  such 
an  interest  in  real  estate  as  will  protect  the  erection  and  possession 
of  buildings  and  permanent  fixtures  thereon  shall  be  taxable  as  the 
land  of  the  person  who  has  that  interest  in  the  real  estate  and  owns 
and  possesses  the  buildings  and  fixtures,  though  unaccompanied  by 
the  fee.  People  v.  Cassitv,  46  N.  Y.  40;  Smith  v.  The  Mayor  of 
New  York,  68  Id.  553,  556;  People,  ex  rel.  N.  Y.  El.  K.  R.  v. 
Commissioners,  8'^  Id.  459,  463.  Under  this  construction  the  New 
York  courts  have  held  that  a  pier  constructed  in  New  York  harbor 
(Smith  V.  The  Mayor  of  New  York,  supra),  the  track  of  a  street 
railroad  (People  v.  Cassity,  supra),  the  foundation  columns  and 
superstructure- of  an  elevated  railway  (People,  ex  rel.  N.  Y.  El.  R.  R. 
V.  Commissioners,  supra)  and  an  underground  railway  (People, 
ex  rel.  N.  Y.  &  H.  R.  R.  Co.  v.  Commissioners,  101  N.  Y.  333), 
were  taxable  to  the  owners  thereof  as  real  estate,  although  the  fee 
in  the  land  to  which  such  structures  were  affixed  was  in  another. 

The  counsel  of  the  prosecutor  relies  mainly  on  People  v.  Board 
of  Assessors,  39  N.  Y.  81.  In  that  case  it  was  held  that  the  mains 
of  a  gas  company  under  the  street's  of  a  city  could  not  be  regarded 
as  real  estate  for  the  purpose  of  taxation.  Laying  gas  and  water 
pipes  in  the  streets,  under  legislative  authority,  is  recognized  as  a 
legitimate  use  of  the  streets.  State  v.  Trenton,  7  Vroom  79,  85; 
3  Dill.  Mun.  Corp.  (4th  ed.)  691,  note  1,  and  cases  cited.  At  all 
events,  it  does  not  appear  in  the  case  that  the  company  had  acquired 
from  any  source  an  interest  or  right  in  the  lands.  The  case  was 
decided  on  the  autliority  of  Boreel  v.  The  Mayor  of  New  York, 
3  Sandf.  553,  which  was  disapproved  in  Smith  v.  The  Mayor  of 
New  York,  68  N.  Y.  553,  as  applied  to  facts  like  those  in  this  case. 

We  think  the  assessment  was  properly  made  against  the  prose- 
cutor, and  the  judgment  of  the  Supreme  Court  sustaining  it  should 
be  affirmed. 


CENTRAL  RAILROAD  CO.  v.  JERSEY  CITY. 
Supreme  Court  of  the  United  States.     1908. 

[Reported  209  U.  8.  473.] 

Holmes,  J.  This  is  a  writ  of  error  prosecuted  to  review  a  judg- 
ment sustaining  taxes  levied  by  Jersey  City  upon  lands  of  the  plain- 
tiff in  error  hing  between  the  middle  of  New  York  Bay  and  its  low 
water  line  on  the  New  Jersey  shore.  It  is  argued  that  this  land, 
although  it  belonged  to  New  Jersey  until  conveyed,  is  not  within 
its  jurisdiction,  and  cannot  be  taxed  under  the  authority  of  that 
State.  The  Supreme  Court  upheld  the  tax,  41  Vroom,  81,  and 
its  judgment  was  affirmed  by  the  Court  of  Errors  and  Appeals  for 
the  reasons  given  by  the  Supreme  Court.  43  Vroom,  311.  The 
plaintiff  in  error  contended  that,  as  New  Jersey  had  not  the  right 


SECT.  I.]  CENTRAL  RAILROAD  CO.  V.  JERSEY  CITY.  47 

to  tax,  the  attempt  was  to  deprive  the  prosecutor  of  its  property 
contrary  to  the  Fourteenth  Amendment,  and  brought  the  ca^e  here. 

The  decision  depends  upon  the  construction  of  an  agreement 
made  between  New  Jersey  and  New  York  for  the  purpose  of  settling 
the  territorial  limits  and  jurisdiction  of  the  two  States,  which  previ- 
ously had  been  the  subject  of  dispute.  Tiiis  agreement  was  made  by 
commissioners  a])pointed  for  the  purpose,  was  confirmed  by  New  York 
on  February  5,  1834,  Laws  of  1834,  ch.  8,  p.  8,  and  by  New  Jersey 
on  February  26,  1834,  Laws  of  1834,  p.  118,  and  was  approved  by 
Congress  by  act  of  June  28,  1834,  c.  126.  4  Stat.  708.  By  Ar- 
ticle I,  the  boundary  line  between  the  two  States  from  a  point  above 
the  land  in  dispute  is  to  be  the  middle  of  the  Hudson  River,  of  the 
Bay  of  New  Y'ork,  of  the  water  between  Staten  Island  and  New 
Jersey,  etc.,  "except  as  hereinafter  otherwise  particuhirly  men- 
tioned." By  Article  II,  New  Y^ork  retains  its  present  jurisdiction 
over  Bedlow's  and  Ellis  Islands,  and  exclusive  jurisdiction  over 
certain  other  islands  in  the  waters  mentioned.  By  Article  III,  New 
Y^ork  is  to  have  "exclusive  jurisdiction  of  and  over  all  the  waters  of 
the  Bay  of  New  York,  and  of  and  over  all  the  waters  of  the  Hudson 
River  lying  west  of  ]\Ianhattan  Island  and  to  the  south  "  of  the  above 
mentioned  point,  "and  of  and  over  the  land  covered  by  the  said 
waters  to  the  low  water  mark  on  the  westerly  or  New  Jersey  side 
thereof,  subject  to  the  following  rights  of  property  and  jurisdiction 
of  the  State  of  New  Jersey,  that  is  to  say:  1.  The  State  of  New 
Jersey  shall  have  the  exclusive  right  of  property  in  and  to  the  land 
under  water  lying  west  of  the  middle  of  the  Bay  of  New  Y'ork  and 
west  of  the  middle  of  tliat  part  of  the  Hudson  River  which  lies 
between  Manhattan  Island  and  New  Jersey."  2.  New  Jersey  is  to 
have  exclusive  jurisdiction  over  wharves,  docks  and  improvements 
made  or  to  be  made  on  its  shore  and  over  vessels  aground  or  fast- 
ened there,  subject  to  the  quarantine  and  passenger  laws  of  New 
York.  3.  New  Jersey  is  to  have  tlie  exclusive  right  of  regulating 
the  fisheries  on  the  west  of  the  middle  of  said  waters,  providing  that 
navigation  be  not  obstructed  or  hindered. 

The  other  articles  need  but  brief  mention.  Article  IV  gives  New 
Y''ork  "exclusive  jurisdiction''  over  the  waters  of  the  Kill  van  Kull 
"in  respect  to  such  quarantine  laws  and  laws  relating  to  passengers, 
etc.,  and  for  executing  the  same,"  and  over  certain  other  waters. 
Article  V  gives  New  Jersey  exclusive  jurisdiction  over  certain  other 
waters  subject  to  New  Y^'ork's  exclusive  property  and  exclusive  juris- 
diction over  wharves,  docks  and  improvements  within  certain  limits, 
and  exclusive  right  of  regulating  the  fislieries  on  its  side,  as  above 
in  the  case  of  New  Jersey.  Articles  VI  and  VII  provide  for  the 
service  of  criminal  and  civil  process  of  each  State  on  the  waters 
within  the  exclusive  jurisdiction  of  the  other.  Article  VITT  and  last 
calls  for  the  confirmation  of  the  agreement  by  the  two  States  and 
approval  by  the  Congress  of  the  United  St-ates. 

Thus  tlie  land  winch  has  been  taxed  is  on  the  New  Jersey  pide 
of  the  boundary  line  but  under  the  "exclusive  jurisdiction"  of 
New  York,  subject  to  the  exclusive  right  of  property  in  New  Jersey 


4S  CE:S'TEAL    EAILKOAD     CO.     V.     JEIiSEY    CITY.        [cJIAP.     II. 

and  the  limited  jurisdiction  and  authority  conferred  by  the  para- 
graphs summed  up.  The  question  is  which  of  these  provisions 
governs  the  right  to  tax.  It  appears  to  us  plain  on  the  face  of  the 
agreement  that  the  dominant  fact  is  the  establishment  of  the  boun- 
dary line.  The  boundary  line  is  the  line  of  sovereignty,  and  the 
establislmient  of  it  is  not  satisfied  but  is  contradicted  by  the  sug- 
gestion that  the  agreement  simply  gives  the  ownership  of  the  land 
under  water  on  the  New  Jersey  side  to  that  State  as  a  private  owner 
of  land  lying  within  the  State  of  New  York.  On  the  contrary,  the 
provision  as  to  exclusive  right  of  property  in  the  compact  between 
States  is  to  be  taken  primarily  to  refer  to  ultimate  sovereign  rights, 
in  pursuance  of  the  settlement  of  the  territorial  limits,  which  was 
declared  to  be  one  purpose  of  the  agreement,  and  is  not  to  be  con- 
fined to  the  assertion  and  recognition  of  a  private  claim,  which,  for 
all  that  appears,  may  have  been  inconsistent  with  titles  already 
accrued  and  which  would  lose  significance  the  moment  that  New 
Jersey  sold  the  land.  We  repeat  that  boundary  means  sovereignty, 
since  in  modern  times  sovereignty  is  mainly  territorial,  unless  a 
different  meaning  clearly  appears. 

It  is  said  that  a  different  meaning  does  appear  in  the  Article 
(III)  that  gives  New  York  exclusive  jurisdiction  over  this  land 
as  well  as  the  water  above  it.  But  we  agree  with  the  state  courts 
that  have  been  called  on  to  construe  that  part  of  the  agreement  that 
the  purpose  was  to  promote  the  interests  of  commerce  and  naviga- 
tion, not  to  take  back  the  sovereignty  that  otherwise  was  the  con- 
sequence of  Article  I.  This  is  the  view  of  the  New  York  as  well 
as  of  the  New  Jersey  Court  of  Errors  and  Appeals,  and  it  would  be  a 
strange  result  if  this  court  should  be  driven  to  a  different  conclusion 
from  that  reached  by  both  the  parties  concerned.  Ferguson  v.  Eoss, 
126  N.  Y.  459,  463 ;  People  v.  Central  E.  E.  Co.,  42  N.  Y.  283. 
This  opinion  is  confirmed  by  the  judgment  delivered  by  one  of  the 
commissioners  in  State  v.  Babcock,  1  Vroom,  29.  Again,  as  was 
pointed  out  by  the  state  court,  the  often  expressed  purpose  of  the 
appointment  of  the  commissioner  and  of  the  agreement  to  settle 
the  territorial  limits  and  jurisdiction  must  mean  by  territorial 
limits  sovereignty,  and  by  jurisdiction  something  less.  It  is  sug- 
gested that  jurisdiction  is  used  in  a  broader  sense  in  the  second 
article,  and  that  may  be  true  so  far  as  concerns  Bedlow's  and  Ellis 
Islands.  But  the  provision  there  is  that  New  York  shall  retain  its 
"  present "  jurisdiction  over  them,  and  would  seem  on  its  face 
simply  to  be  intended  to  preserve  the  siatvs  quo  ante,  whatever  it 
may  be. 

Throughout  nearly  all  the  articles  of  the  agreement,  other  than 
those  in  controversy,  the  word  jurisdiction  obviously  is  used  in  a 
more  limited  sense.  The  word  has  occurred  in  other  cases  where 
a  river  was  a  boundary,  and  in  the  Virginia  Compact  was  held  to 
mean,  primarily  at  least,  Jurindidio,  authority  to  applv  the  law  to 
the  acts  of  men.  Wedding  v.  Meyler,  3  92  TJ.  S.  573,  584.  Whether 
in  the  case  at  bar  some  power  of  police  regulation  also  was  con- 
ferred upon  New  York,  as  held  in  Ferguson  v.  Eoss,  need  not  be 


SECT.  I.J  BOSTON  MANUFACTUKING  CO.  V.  NEWTOX.  49 

decided  now.  That  New  Jersey  retained  the  sovereignty,  however, 
seems  to  be  assumed  in  Article  111  (2),  giving  her  exclusive  juris- 
diction over  wharves,  docks  and  improvements,  made  and  "  to  be 
made,"  on  the  shore.  This  does  not  grant  the  right  to  make  such 
improvements,  but  assumes  it  to  exist.  But  the  right  would  need 
the  permission  of  New  York,  except  on  the  hypothesis  that  New 
Jersey  had  sovereign  power  over  the  place. 

The  conclusion  reached  has  the  very  powerful  sanction  of  the 
conduct  of  the  parties  and  of  the  existing  condition  of  things.  See 
Moore  v.  MciJuire,  205  U.  S.  214,  220.  Tlie  decisions  of  the  courts 
have  been  referred  to.  It  was  admitted  at  the  bar  that  the  record 
of  transfers  of  such  lands  was  kept  in  New  Jersey,  not  in  New  York. 
New  York  never  has  attempted  to  tax  the  land,  while  New  Jersey 
has  levied  more  or  less  similar  taxes  for  many  years  without  dis- 
pute. See,  e.  g.  State  v.  Collector  of  Jersey  City,  4  Zabr.  108,  120 ; 
State  V.  Jersey  City,  1  Butcher,  530;  State  v.  Jersey  City,  6  Vroom, 
178;  S.  C,  7  Vroom,  471.  New  Jersey,  not  New  York,  regulates 
the  improvements  on  the  shore.  Act  of  March  18,  1851,  P.  L.  1851, 
p.  335;  Rev.  1877,  p.  1240;  Act  of  April  11,  1864,  P.  L.  1864, 
p.  681;  March  31,  1869,  P.  L.  1869,  p.  1017;  3  Gen.  Stat.  2784, 
2786 ;  New  York,  Lake  Erie  &  Western  R.  R.  Co.  v.  Hughes,  46  N. 
J.  67.  Without  going  into  all  the  details  that  have  been  mentioned 
in  the  careful  and  satisfactory  discussion  of  the  question  in  the  state 
courts  we  are  of  opinion  that  the  land  in  question  is  subject  to  the 
sovereignty  of  the  State  of  New  Jersey,  and  that  the  exclusive 
jurisdiction  given  to  the  State  of  New  York  does  not  exclude  the 
right  of  the  sovereign  power  to  tax. 

Judgment  affirmed. 


BOSTON  MANUFACTURING  CO.  v.  NEWTON. 
Supreme  Judicial  Court  of  Massachusetts.     1839. 

[Reported  22  Pick.  22.] 

By  an  agreed  statement  of  facts,  it  appeared,  that  the  plaintiffs 
were  owners  of  two  mill  dams  extending  across  Charles  River,  where 
it  passes  between  the  towns  of  Waltham  and  Newton,  one  half  of  the 
dams  being  in  Newton,  and  the  other  half  in  Waltham;  that  the 
water-power  created  thereby  was  exclusively  applied  by  the  plaintiffs 
to  drive  certain  mills  for  the  manufacture  of  cotton,  situated  in 
Waltham;  but  that  there  was  no  natural  obstacle  to  prevent  this 
water  power  from  being  applied  and  used  to  drive  mills  on  the 
Newton  side  of  the  river. 

It  further  appeared,  that  the  plaintiffs  were  taxed  in  Newton,  for 
one  half  of  the  dams,  which  was  valued  by  the  assessors,  in  assessing 
the  taxes  for  that  year,  at  $3500; — for  the  land  covered  by  the  water 
of  the  river  in  Newton,  valued  by  the  assessors  at  $1300.  —  and  for 
one  half  of  the  water  power,  valued  at  $16,500;  and  that  the  plain- 
tiffs had  alwavs  been  taxed  by  the  town  of  Waltham  for  the  value  of 
their  mills,  they  being  estimated  by  the  assessors  as  mills  for  the 
manufacture  of  cotton  cloth. 


50  QUIXEBAUG    KESEBVOIR   CO.    V.    UNION.  "  [ciIAP.    II. 

The  plaintiffs,  in  order  to  avoid  the  seizure  and  sale  of  their  prop- 
erty by  the  collector  of  Ne^\'ton,  paid  the  tax  assessed  upon  them  in 
that  town,  protesting  against  its  legality ;  and  this  action  was  brought 
for  the  purpose  of  trying  the  right  of  the  town  of  Newton  to  tax 
the  water  power. 

If  the  Court  should  be  of  opinion,  that  the  town  of  Newton  could 
not  lawfully  tax  this  water  power,  judgment  was  to  be  rendered  in 
favor  of  the  plaintiffs ;  otherwise,  for  the  defendants. 

SiiAW  C.  J.,  delivered  the  opinion  of  the  Court.  The  only  ques- 
tion in  this  case  is,  whether  the  town  of  Newton  have  a  right  to  tax 
the  plaintiffs,  for  the  property,  and  under  the  circumstances,  men- 
tioned in  the  agreed  statement  of  facts. 

In  the  first  place,  the  Court  are  of  opinion,  that  water  power  for 
mill  purposes  not  used,  is  not  a  distinct  subject  of  taxation.  It  is  a 
capacity  of  bind  for  a  certain  mode  of  improvement,  which  cannot 
be  taxed  independently  of  the  land. 

But  the  objection  to  this  mode  of  taxation,  is  not  the  only  or  prin- 
cipal objection  to  the  tax  in  question.  The  Court  are  of  opinion,  that 
the  water  power  had  been  annexed  to  the  mills,  that  it  went  to  enhance 
the  value  of  the  mills,  and  could  only  be  taxed  together  with  the  mills, 
as  contributing  to  increase  their  value.  As  the  mills  were  wholly 
situated  in  Waltham,  and  were  taxable  there,  they  were  not  liable  to 
be  taxed  in  Newton. 

Defendants  defaulted  and  judgment  to  be  entered  for  the  amount 
agreed.  ^ 


QUINEBAUG  EESERVOIR  CO.  v.  UNION. 
Supreme  Court  of  Errors  of  Coxxecticut.     1900. 

[Reported  73  Conn.  294.] 

The  Quinebaug  Eeservoir  Company  is  a  Massachusetts  corpora- 
tion. In  1846,  being  the  owner  of  certain  land  surrounding  Masha- 
paug  pond,  with  a  dam  and  water  privileges,  in  Union,  in  this  State, 
it  sold  and  conveyed  them  to  one  Leland,  reserving  certain  rights 
to  raise  and  use  the  pond,  and  to  flow  the  surrounding  land. 

After  this  conveyance  Mashapaug  pond  was  divided  into  two  ponds, 
and  the  company  has  flowed  the  upper  one  to  the  height  of  four  feet, 
for  the  purpose  of  accumulating  a  water  supply  for  use  by  mills  in 
Massachusetts  owned  by  third  parties.  In  1899  it  made  a  return  to 
the  assessors  of  Union  of  its  property  taxable  in  that  towTi,  described 
as:  "Flowage  over  lands  known  as  'Lower  Mashapaug  Pond,'  bounded 
north  by  highway,  ...  .50  acres,  at  $5  per  acre,  $250;  flowage 
over  lands  known  as  'Upper  Mashapaug  Pond,'  bounded  north  hw 
lands  of  Martha  Crawford,  ...  50  acres,  at  $5,  $?50."  The  as- 
sessors added  to  this  list:  "  Ten  acres  of  land  (Mashapaug  pond  as  it 
was  before  4  feet  were  added  to  the  dam)  at  $5,  $50;  dams  and  water 
privileges,  $8,000."  2 

»  See  Saco  W.  P.  Co.  v.  Buxton,  98  Me.  20.5,  .56  Atl.  914. 

*  TTie  facts  have  lieen  abridj^ed,  and  part  of  the  opinion  omitted. 


SECT.    I.]  QUINEBAUG    EESEKVOllt    CO,     V.     UNION.  51 

Baldwin,  J,    General  Statutes,  §  3837,  provide  that  all  property, 

not  exempted,  shall  be  liable  to  taxation,  and  that  all  real  estate  shall 
be  set  in  the  list  of  the  town  where  it  is  situated.  The  conveyance  by 
the  Quinebaug  Reservoir  Company  to  Leland  made  him  the  owner  in 
fee  .  .  .  of  certain  lands,  and  reserved  to  it  a  right  issuing  out  of 
those  lands,  which  was  perpetually  charged  upon  them  in  favor  of 
the  company  and  its  successors  and  assigns.  This  right  was  an  in- 
corporeal hereditament,  and  real  estate.  All  real  estate,  whether 
corporeal  or  incorporeal,  has  a  fixed  ait  as.  This  hereditament,  in  the 
eye  of  the  law,  was  situated  in  the  town  of  Union,  because  the  laud 
out  of  which  it  issued  was  situated  there.  The  company  made  out  a 
tax  list,  embracing  it,  which  was  returned  to  the  assessors  of  that  town. 
It  was  described  in  this  list  as  "  flowage  over  lands "  which  were 
particularly  bounded  and  identified.  It  is  not  disputed  that  the  acre- 
age of  the  lands  subject  to  the  easement  was  underestimated  by  10 
acres.  The  only  question  raised  is  as  to  the  right  of  the  assessors  to 
add,  as  they  did,  the  item,  "  dams  and  water  privileges." 

The  deed  of  184G  shows  that  there  was  then  a  dam  upon  the  lands, 
and  it  is  agreed  that  the  company  has  always  used  its  water  privilege 
by  flowing  them.  For  this  real  estate  the  plaintilf  was  taxable  in 
Union,  unless  it  can  claim  some  statutory  exemption.  .  .  .  When 
water  is  artificially  stored  upon  land  so  as  to  create  mechanical  power 
by  its  fall,  the  necessary  result  is  to  bring  into  existence  a  new  ele- 
ment of  value.  If  the  land  thiis  used  for  storage  purposes  would  be 
more  valuable  for  other  purposes,  the  value  gained  is  less  than  the 
value  lost.  If,  on  the  other  hand,  the  power  created  has  a  value  ex- 
ceeding that  of  the  land  occupied,  the  taxable  resources  of  the  State 
in  which  that  land  is  situated  are  increased.  Such  a  use  of  land  may, 
so  long  as  it  is  continued,  practically  extinguish  the  value  of  the  land 
for  any  other  purpose  than  that  of  sustaining  the  artificial  burden  to 
which  it  has  been  thus  subjected.  In  such  case,  under  our  system 
which  makes  all  real  estate  taxable  by  the  towns  in  which  it  is  sit- 
uated, we  should  expect  that  either  the  value  of  the  power  or  so  much 
of  it  as  equals  that  of  the  land  if  left  in  its  natural  condition,  would 
be  made  taxable  in  the  same  way  in  which  this  land  had  been  before. 
Such  is  the  practical  effect  of  the  law,  as  we  have  construed  it,  and  its 
enactment  was  fully  within  the  competence  of  the  General  Assembly. 
The  power,  in  whatever  State  it  may  be  used,  came  into  existence 
and  is  now  maintained  under  the  protection  of  the  laws  of  Con- 
necticut, and  its  owner,  wherever  he  mav  belonir,  is  taxable  upon  it 
here,  Winnipiseogee  Lake  Mfg.  Co.  v.  Gilford,  CA  X.  II.  337,  10  Atl. 
Rep.  840.  Xot  to  tax  it  would  be  to  discriminate  in  favor  of  the 
owners  of  water  privileges,  as  against  all  other  proprietors  of  real 
estate.    Cheshire  v.  County  Commissioners,  118  Mass.  386. 

"We  have  no  occasion  to  inquire  whether  it  can  be  taxed  at  a  valua- 
tion estimated  with  reference  to  its  use  in  Massachusetts.  The  appeal 
is  based,  not  upon  the  valuation  given  by  the  assessors  to  the  item 
which  they  added,  but  on  their  right  to  make  the  addition  at  all. 


52  ANDERSON  V.    DUER.  [CHAP.  II. 

ANDERSON  V.  DURE. 
Supreme  Court  of  the  United  States.     1921. 

[Reported  42  Sup.  Ct.  16.] 

Pitney^  J.  The  essential  facts  are  as  follows:  Plaintiff  holds  a 
membership  or  seat  in  the  New  York  Stock  Exchange  for  which 
he  paid  $150,000,  and  which  carries  valuable  privileges  and  has  a 
market  value  for  the  purposes  of  sale.  The  Exchange  is  not  a  cor- 
poration or  stock  company,  but  a  voluntary  association  consisting 
of  1,100  members,  governed  by  its  own  constitution,  by-laws  and 
rules,  and  holding  the  beneficial  ownership  of  the  entire  capital 
stock  of  a  New  York  corporation  which  owns  the  building  in  which 
the  business  of  the  Exchange  is  transacted,  with  the  land  upon 
which  it  stands,  situated  in  the  city  of  New  Y^ork,  and  having  a 
value  in  excess  of  $5,000,000.  A  member  has  the  privilege  of 
transacting  a  brokerage  business  in  securities  listed  upon  the  Ex- 
change, but  may  personally  buy  or  sell  only  in  the  Exchange  build- 
ing. Membership  is  evidenced  merely  by  a  letter  from  the  secretary 
of  the  Exchange,  notifying  the  recipient  that  he  has  been  elected 
to  membership.  Admissions  to  membership  are  made  on  the  vote 
of  the  committee  on  admissions.  Membership  may  be  transferred 
only  upon  approval  of  the  transfer  by  the  committee,  and  the  pro- 
ceeds are  applied  first  to  pay  charges  and  claims  against  the  retiring 
member,  arising  under  the  rules  of  the  Exchange,  any  surplus  being 
paid  to  him.  On  the  death  of  a  member,  his  membership  is  subject 
to  be  disposed  of  by  the  committee;  but  his  widow  and  descendants 
are  entitled  to  certain  payments  out  of  a  fund  known  as  the  "  gratuity 
fund."  In  the  business  of  brokers  in  stocks  and  bonds  a  differentia- 
tion is  made  between  members  of  the  Exchange  and  nonmembers, 
in  that  business  is  transacted  by  members  on  account  of  other  mem- 
bers at  a  commission  materially  less  than  that  charged  to  nonmem- 
bers. A  firm  having  as  a  general  partner  a  memljer  of  the  Exchange 
is  entitled  to  have  its  business  transacted  at  the  rates  prescribed 
for  members. 

That  a  membership  held  by  a  resident  of  the  state  of  Ohio  in 
the  Exchange  is  a  valuable  property  right,  intangible  in  its  nature, 
but  of  so  substantial  a  character  as  to  be  a  proper  subject  of  prop- 
erty taxation,  is  too  plain  for  discussion.  That  such  a  membership, 
although  partaking  of  the  nature  of  a  personal  privilege,  and  assign- 
able only  with  qualifications,  is  property  ^\athin  the  meaning  of  the 
P)ankrupt  Laws,  has  repoatorllv  been  held  by  this  court.  Hvde  v. 
Woods,  94  U.  S.  523-525;  Sparhawk  v.  Yerkes,  142  U.  S.  1,  12; 
Page  V.  Edmunds,  187  TJ.  S.  596,  601.  Whether  it  is  subjected  to 
taxation  by  the  taxing  laws  of  Ohio  is  a  question  of  state  law,  an- 
swered in  the  affirmative  by  the  court  of  last  resort  of  that  state,  by 
whose  decision  upon  this  court  we  are  controlled.  Clement  Nat. 
Bank  v.  Vermont,  231  U.  S.  120. 

The  chief  contention  here  is  based  upon  the  due  process  of  law 


SECT.  I.]  ANDERSON    V.    DIRR.  o3 

provision  of  the  11th  Amendment:  it  being  insisted  that  the  privilege 
of  inenibersliip  in  the  Exchange  is  so  inseparably  connected  with 
sijccific  real  estate  in  New  York  that  its  taxaljle  situs  must  be 
regarded  as  not  within  the  jurisdiction  of  tiie  state  of  Ohio.  Louis- 
vifle  &  J.  Ferry  Co.  v.  Kentucky,  188  U.  S.  ;385,  is  cited.  It  is 
very  clear,  however,  as  the  supreme  court  held,  that  the  valuable 
privilege  of  such  membership  is  not  c-onlined  to  the  real  estate  of 
the  Stock  Exchange;  that  a  member  has  a  contractual  right  to  have 
the  association  conducted  in  accordance  with  its  rules  and  regula- 
tions, and  incidentally,  has  the  right  to  deal  through  other  members 
on  certain  fixed  percentages  tyid  methods  of  division  of  commissions; 
that  tills  riglit  to  secure  the  services  of  other  members  and  to  "  split 
commissions"  is  a  valuable  right  by  which  plaiiitilf  in  Cincinnati 
may  properly  hold  himself  out  as  a  member  entitled  to  the  privileges 
of  the  Exchange,  denied  to  nonmembers;  and  that  thus  he  is 
enabled  to  conduct  from  and  in  his  Cincinnati  ollice  a  lucrative  busi- 
ness through  other  members  in  New  York.  The  court  held,  and 
was  warranted  in  holding,  that  the  membership  is  personal  property, 
and,  being  without  fixed  situs,  has  a  taxable  situs  at  the  domicil 
of  the  owTier.  Mobilia  sequuntur  personam.  See  Union  Refrigera- 
tor Transit  Co.  v.  Kentucky,  l!)i)  C.  S.  194,  205.  The  asserted 
analogy  to  Louisville  &  J.  Ferry  Co.  v.  Kentucky,  supra,  cannot 
be  accepted.  That  decision  related  to  a  public  franchise  arising 
out  of  legislature  grant,  held  to  be  an  incorporeal  hereditament  in 
the  nature  of  real  property,  and  to  have  no  taxable  situs  outside 
the  granting  state.  It  did  not  involve  the  taxation  of  intangible 
personal  property.  See  Hawley  v.  Maiden,  233  U.  S.  1,  11;  Cream 
of  Wheat  Co.  v.  Grand  Forks  County,  U.  S.  325,  328. 

Nor  is  plaintilf's  case  stronger  if  we  assume  that  the  membership 
privileges  exercisable  locally  in  New  Y^ork  enable  that  state  to  tax 
them  even  as  against  a  resident  of  Ohio.  (See  Rogers  r.  Hennepin 
County,  240  U.  S.  184,  191.)  Exemption  from  double  taxation  by 
one  and  the  same  state  is  not  guaranteed  by  the  14th  Amendment 
(St.  Louis  Southwestern  R.  Co.  v.  Arkansas,  235  U.  S.  350,  367, 
368)  ;  much  less  is  taxation  by  two  states  upon  identical  or  closely 
related  property  interests  falling  \nthin  the  jurisdiction  of  l)oth 
forbidden  (Kidd  v.  Alabama,  188  U.  S.  730,  732  ;  Hawley  v.  Maiden, 
232  U.  S.  1,  13;  Fidelitv  &  C.  Trust  Co.  v.  Louisville,  245  U.  S. 
54,  58). 

That  plaintiff  is  denied  the  equal  protection  of  the  laws,  within 
the  meaning  of  the  14th  Amendment,  cannot  be  successfully  main- 
tained upon  the  record  before  us.  The  argument  is  that  other 
brokers  in  the  same  city  are  not  taxed  upon  the  value  of  their 
memberships  in  the  loca)  stock  exchange,  nor  upon  the  privilege 
of  doing  business  in  New  Y^ork  Stock  Exchange  securities.  As  to 
the  local  exchange  memberships,  it  may  be  that  the  failure  to  tax 
them  is  but  accidental,  or  due  to  some  negligence  of  subordinate 
officers,  and  is  not  properly  to  be  regarded  as  the  act  of  the  state. 
If  it  be  state  action,  there  is  a  presumption  that  some  fair  reason 
exists  to  support  the  exemption,  not  applicable  to  a  membership  in 
the  New  Y^ork  Exchange,  and  plaintiff  has  sho\vi\  nothing  to  over- 


54:  ANDERSON    V,    DURR.  [CHAP.   II. 

come  the  presumption.  As  to  the  privilege  referred  to,  it  already 
has  been  shown  tliat  the  rights  incident  to  plaintiff's  property  in- 
terest give  him  pecuniary  advantages  over  others  in  the  same  busi- 
ness. Manifestly  this  furnishes  a  reasonable  ground  for  taxing  him 
upon  the  property  right,  although  others  enjoying  lesser  privileges 
because  of  not  having  it  may  ren\ain  untaxed. 

The  contention  that  the  tax  constitutes  a  direct  burden  upon 
interstate  commerce  is  groundless.  Ordinary  property  taxation  im- 
posed upon  property  employed  in  interstate  commerce  does  not 
amount  to  an  unconstitutional  burden  upon  the  commerce  itself. 
Pullman's  Palace  Car  Co.  v.  Pennsvkania,  141  U.  S.  18,  23,  35; 
Cleveland,  C.  C.  &  St.  L.  R.  Co.  v.  Backus,  15-1  U.  S.  439, 445 ;  Postal 
Teleg.  Cable  Co.  v.  Adams,  155  U.  S.  G88,  700. 

Writ  of  error  dismissed. 

Writ  of  certiorari  granted. 

Judgment  affirmed. 

Holmes^  J.  The  question  whether  a  seat  in  the  New  York  Stock 
Exchange  is  taxable  in  Ohio  consistently  with  the  principles  estab- 
lished by  this  court  seems  to  me  more  difficult  than  it  does  to  my 
brethren.  All  rights  are  intangible  personal  relations  between  the 
subject  and  the  object  of  them  created  by  law.  But  it  is  established 
that  it  is  not  enough  that  the  subject,  the  owner  of  the  right,  is 
within  the  power  of  the  taxing  state.  He  cannot  be  taxed  for  land 
situated  eleswhere,  and  the  same  is  true  of  personal  property  per- 
manently out  of  the  jurisdiction.  It  does  not  matter,  I  take  it, 
whether  the  interest  is  legal  or  equitable,  or  what  the  machinery 
by  which  it  is  reached,  but  the  question  is  whether  the  object  of 
the  right  is  so  local  in  its  foundation  and  prime  meaning  that  it 
should  stand  like  an  interest  in  land.  If  left  to  myself  I  should 
have  thought  that  the  foundation  and  substance  of  the  plaintiff's 
right  was  the  right  of  himself  and  his  associates  personally  to  enter 
the  New  York  Stock  Exchange  building  and  to  do  business  there. 
I  should  have  thought  that  all  the  rest  was  incidental  to  that,  and 
that  that,  on  its  face,  was  localized  in  New  York.  If  so,  it  does  not 
matter  whether  it  is  real  or  personal  property,  or  that  it  adds  to  the 
owner's  credit  and  facilities  in  Ohio.  The  same  would  be  true  of 
a  great  estate  in  New  York  land. 

As  my  Brothers  Vax  Devaxter  and  McReynolds  share  the  same 
doubts,  it  has  seemed  to  ua  proper  that  they  should  be  expressed. 


BECT.  II.]  HOYT   V.   COMMISSIONERS   OF   TAXES.  T)." 

HOYT  V.  COMMISSIONERS   OF  TAXES. 

Court  of  Api'kals  of  Nkw  Yokk.     18G1. 

[neporieJ  23  New  York,  2'24.] 

CoMSTocK,  C.  J.  The  legislature,  in  tlefiiiiiig  property  which  is  liable 
to  taxation,  have  used  the  following  language:  "All  lands  and  all 
personal  estate  icifhin  this  /State,  whether  owned  by  individutils  or 
corporations,  shall  be  liable  to  taxation  subject  to  the  exemptions  here- 
inafter specified."  (1  II.  S.,  387,  §  1.)  The  title  of  the  act  in  which 
this  provision  is  contained,  is,  "  of  the  i)roi)ert\'  liable  to  taxation," 
and  it  is  in  this  title  that  we  ought  to  look  for  controlling  dclinilions 
on  the  sul)ject.  Other  enactments  relate  to  the  details  of  the  system 
of  taxation,  to  the  mode  of  imposing  and  collecting  the  public  burdens, 
and  not  to  the  property  or  sultject  upon  which  it  is  imposed.  In  order, 
therefore,  to  determine  the  question  now  before  us,  the  primary  requisite 
is  to  interpret  justly  and  fairly  the  language  above  quoted. 

"All  lands  and  all  personal  estate  within  this  State  shall  be  liable  to 
taxation."  If  we  are  willing  to  take  this  language,  without  attempt- 
ing to  obscure  it  by  introducing  a  legal  fiction  as  to  the  situs  of 
personal  estate,  its  meaning  would  seem  to  be  plain.  Lands  and 
pi-rsoiial  property  having  an  actual  situation  within  the  Slate  are  lax- 
al)le,  and  by  a  necessary  implication  no  other  property  can  be  taxed. 
I  know  not  in  what  language  more  appropriate  or  exact  the  idea  could 
have  been  expressed.  Real  and  personal  estate  are  included  in  pre- 
cisely the  same  form  of  expression.  Both  are  mentioned  as  being 
within  the  State.  It  is  conceded  that  lands  lying  in  another  State 
or  country,  cannot  be  taxed  against  the  owner  resident  here,  and  no 
one  ever  supposed  the  contrary.  Yet  it  is  claimed  that  goods  and 
chattels  situated  in  Louisiana,  or  in  France,  can  be  so  taxed.  The 
legislature  I  su[)pose  could  make  this  distinction,  but  that  they  have 
not  made  it,  in  the  language  of  the  statute  is  perfectly  clear.  Nor  is 
the  reason  ai)parent  wh}'  such  a  distinction  should  be  made.  Lands 
have  an  actual  situs,  which  of  course  is  immovable.  Chattels  also 
have  an  actual  situs,  although  they  can  be  moved  from  one  place  to 
another.  Both  are  equally  pioteeted  by  the  laws  of  the  State  or  sov- 
ereignty in  which  they  are  situated,  and  both  are  chargeable  tliere  with 
public  burdens,  according  to  all  just  principles  of  taxation.  A  purely- 
poll  tax  has  no  respect  to  property.  We  have  no  such  tax.  With  us 
taxation  is  upon  property,  and  so  it  is  in  all  the  States  of  the  Union. 
So  also  in  general,  it  is  in  all  countries.  Tiie  logical  result  is,  that  the 
tax  is  incurred  within  the  jurisdiction  and  under  the  laws  of  the 
country  where  it  is  situated.     If  we  say  that  taxation  is  on  the  person 


.')6  HOYT    V.    COMMISSIONERS   OF   TAXES.  [CHAP.  II. 

in  respect  to  the  property,  we  arc  still  without  a  reason  for  assessing 
the  owner  resident  here,  in  rcs[)ect  to  one  part  of  his  estate  situated 
elsewhere,  and  not  in  respect  to  another  part.  Both,  I  repeat,  are  the 
subjects  of  taxation  in  the  foreign  jurisdiction.  If  then  the  owner 
ougljt  to  be  subjected  to  a  doulile  burden  as  to  one,  why  not  as  to  the 
other  also  ? 

I  find  then  no  room  for  interpretation,  if  we  take  the  words  of  the 
statute  in  their  plain  ordinary  sense.  The  legislative  definition  of 
taxable  property  refers  in  that  sense  to  the  actual  situs  of  personal 
not  less  than  real  estate.  If  the  intention  had  been  different,  it  cannot 
be  doubted  that  different  language  would  have  been  used.  It  would 
have  been  so  easy  and  so  natural  to  have  declared  tliat  all  lands  within 
this  State,  and  all  personal  propertv  wherever  situated,  owned  by 
residents  of  this  State,  shall  be  liable  to  taxation,  that  we  should  have 
expected  just  such  a  declaration,  if  such  had  been  the  meaning  of  the 
law-making  power.  To  me,  it  is  evident  that  the  legislature  were  not 
enunciating  a  legal  fiction  which,  as  we  shall  presently  see,  expresses  a 
rule  of  law  in  some  circumstances  and  relations,  but  which  in  others  is 
not  the  law.  The\'  were  speaking  in  plain  words,  and  to  the  plain 
understanding  of  men  in  general.  When  they  said  all  real  and  all 
personal  estate  within  this  State,  I  see  no  room  for  a  serious  doubt 
that  they  intended  propert}'  actual!}'  within  the  State  wherever  the 
owner  might  reside. 

It  is  said,  however,  that  personal  estate  by  a  fiction  of  law  has  no 
situs  awa}-  from  the  person  or  residence  of  the  owner,  and  is  alwa3-s 
deemed  to  be  present  with  him  at  the  place  of  his  domicile.  The  right 
to  tax  the  relator's  property  situated  in  New  Orleans  and  New  Jersey, 
rests  upon  the  universal  application  of  this  legal  fiction  ;  and  it  is 
accordingl}'  insisted  upon  as  an  absolute  rule  or  principle  of  law  which, 
to  all  intents  and  purposes,  transfers  the  propert}'  from  the  foreign  to 
the  domestic  jurisdiction,  and  thus  subjects  it  to  taxation  under  our 
laws.  Let  us  observe  to  what  results  such  a  theory  will  lead  us.  The 
necessary  consequence  is,  that  goods  and  chattels  actually  within  this 
State  are  not  here  in  anj-  legal  sense,  or  for  any  legal  purpose,  if  the 
owner  resides  abroad.  They  cannot  be  taxed  here,  because  they  are 
with  the  owner  who  is  a  citizen  or  subject  of  some  foreign  State.  On 
the  same  ground,  if  we  are  to  have  harmonious  rules  of  law,  we  ought 
to  relinquish  the  administration  of  the  effects  of  a  person  resident  and 
dying  abroad,  although  the  claims  of  domestic  creditors  may  require 
such  administration.  So,  in  the  case  of  the  bankruptcy  of  such  a 
l)erson,  we  should  at  once  send  abroad  his  effects,  and  cannot  consist- 
entl}"  retain  them  to  satisfy  the  claims  of  our  own  citizens.  Again,  we 
ought  not  to  have  laws  for  attaching  the  personal  estate  of  non-residents, 
because  such  laws  necessarily  assume  that  it  has  a  situs  entirely  distinct 
from  the  owner's  domicile.  Yet  we  do  in  certain  cases  administer  upon 
goods  and  chattels  of  a  foreign  decedent ;  we  refuse  to  give  up  the 
effects  of  a  bankrupt  until  creditors  here  are  paid  ;  and  we  have  laws 


SECT.  II.]  IIOYT    V.    COMMISSIONER.S    OF   TAXKS.  57 

of  attaclimont  against  the  efrects  of  non-resident  deI»tors.  These,  and 
other  illustrations  which  niigiit  be  mentioned,  demonstrate  that  the 
fiction  or  maxim  inob'dia  personam  sequiiatur  is  \)\j  no  means  of 
universal  application.  Like  other  fictions,  it  has  its  special  uses.  It 
may  he  resorted  to  when  convenience  and  justice  so  re(juirc.  In  olher 
circumstances  the  truth  and  not  the  lictifjn  affords,  as  it  plainly  ou<'ht 
to  afford,  the  rule  of  action.  The  proper  use  of  legal  fictions  is  to 
prevent  injustice,  according  to  the  maxim,  in  Jictione  juris  seiaper 
cequitas  existat.  ''  No  fiction,"  says  Blackstone,  "  shall  extend  to 
work  an  injury  ;  its  proper  operation  being  to  prevent  a  mischief  or 
remedy  an  inconvenience,  which  might  result  from  the  general  rule  of 
law."  So  Judge  Story,  referring  to  the  situs  of  goods  and  chattels, 
observes:  "•The  general  doctrine  is  not  controverted,  that  although 
movables  are  for  many  purposes  to  be  deemed  to  have  no  situs^  except 
that  of  the  domicile  of  the  owner,  yet  this  being  but  a  legal  fiction  it 
yields  whenever  it  is  necessar\-,  for  the  pur{)ose  of  justice,  that  tiie 
actual  situs  of  the  thing  should  be  examined."  He  adds  quite  perti- 
nently, I  think,  to  the  present  question,  "  A  nation  within  whose  territory 
any  personal  property  is  actually  situated,  has  an  entire  dominion  over 
it  while  therein,  in  point  of  sovereignt}'  and  jurisdiction,  as  it  has  over 
immovable  property  situated  there.''  (Confl.  of  Laws,  §  550.)  I  can 
think  of  no  more  just  and  appropriate  exercise  of  the  sovereignty  of  a 
State  or  nation  over  property,  situated  within  it  and  protected  by  its 
laws,  than  to  compel  it  to  contribute  toward  the  maintenance  of  govern- 
ment and  law. 

Accordingly  there  seems  to  be  no  place  for  the  fiction  of  which  we 
are  speaking,  in  a  well-adjusted  system  of  taxation.  In  such  a  system 
a  fundamental  requisite  is  that  it  be  harmonious.  But  harmony  does 
not  exist  unless  the  taxing  power  is  exerted  with  reference  exclusively 
either  to  the  situs  of  the  proi)erty,  or  to  the  residence  of  the  owner. 
Both  rules  cannot  obtain  unless  we  impute  inconsistency  to  the  law, 
and  oppression  to  the  taxing  power.  Whichever  of  these  rules  is  the 
true  one,  whichever  we  find  to  be  founded  in  justice  and  in  the  reason 
of  the  thing,  it  necessarily  excludes  the  other  ;  because  we  ought  to 
sui)pose,  indeed  we  are  bound  to  assume,  that  other  States  and  Govern- 
ments have  adopted  the  same  rule.  If  then  proceeding  on  the  true 
principles  of  taxation,  we  subject  to  its  burdens  all  goods  and  chattels 
actually  within  our  jurisdiction,  without  regard  to  the  owner's  domicile, 
it  must  be  understood  that  the  same  rule  prevails  everywhere.  If  we 
also  proceed  on  the  opposite  rule,  and  impose  tiie  tax  on  account  of  the 
domicile,  without  regard  to  the  actual  situs,  while  the  same  property  is 
taxed  in  another  sovereignty  b}'  reason  of  its  situs  there,  we  necessarily 
subject  the  citizen  to  a  double  burden  of  taxation.  For  this  no  stnind 
reason  can  be  given.  To  put  a  strong  case.  The  owner  of  a  soiUhorn 
plantation  with  his  thousand  slaves  upon  it,  may  perfer  to  reside  and 
spend  his  income  in  Xew  York.  Our  laws  protect  him  in  his  person  as 
a  citizen  of  the  State,  and  tor  this  the  State  receives  a  suflk-ient  con- 


58  HOYT   V.    COMMISSIONERS   OF   TAXES.  [CHAP.  II. 

sideration  without  taxing  tlie  capital  wliich  it  does  not  protect.  Under 
our  laws  can  we  tax  the  wealth  thus  invested  in  slave  property  ?  They 
ignore,  on  the  coutrar}-,  the  very  existence  of  such  propert}-,  and 
therefore  there  is  no  room  for  the  fiction  according  to  which,  and  only 
according  to  which,  the  situs  is  supposed  to  be  here.  But  if  we  could 
make  room  for  that  fiction,  still  it  remains  to  be  shown  that  some  rule 
of  reason  or  principle  of  equit}'  can  be  urged  in  favor  of  such  taxation. 
This  cannot  be  shown,  and  the  attempt  has  not  been  made. 

We  may  reverse  the  illustration.  A  citizen  and  resident  of  Massa- 
chusetts may  own  a  farm  in  one  of  the  counties  of  this  State,  and  large 
wealth  belonging  to  him  may  be  invested  in  cattle,  in  sheep  or  horses 
which  graze  the  fields,  and  are  visible  to  the  e3es  of  the  taxing  power. 
Now  these  goods  and  chattels  have  an  actual  situs,  as  distinctl}-  so  as 
the  farm  itself.  Putting  the  inquiry  then  with  reference  to  both,  are 
thev  "  real  estate  and  pei-sonal  estate  icithiit  this  State"  so  as  to  be 
subject  to  taxation  untier  that  definition?  It  seems  to  me  but  one 
answer  can  be  given  this  question,  and  that  answer  must  be  according 
to  the  actual  truth  of  the  case.  If  we  take  the  fiction  instead  of  the 
truth,  then  the  situs  of  these  chattels  is  in  Massachusetts,  and  they  are 
not  within  this  State.  The  statute  means  one  thing  or  the  other.  It 
cannot  have  double  and  inconsistent  interpretations.  And  as  this  is 
impossible  so  we  cannot,  under  and  according  to  the  statute,  tax  the 
citizen  of  Massachusetts  in  respect  to  his  chattels  here,  and  at  the 
same  time  tax  the  citizen  of  New  York  in  respect  to  his  chattels 
having  an  actual  situs  there.  In  both  cases  the  property  must  be 
'•  within  this  State,"  or  there  is  no  right  to  tax  it  at  all.  It  cannot  be 
true  in  fact,  if  a  Massachusetts  man  owns  two  spans  of  horses,  one  of 
which  draws  his  carriage  at  home  and  the  other  is  kept  on  his  farm 
here,  that  both  are  within  the  State.  It  cannot  be  true  by  an}-  legal 
intendment,  because  the  same  intendment  which  locates  one  of  them 
here,  must  locate  the  other  abroad  and  beyond  the  taxing  power.  It 
seems  to  follow  then  inevitably  that  before  we  can  uphold  the  tax 
which  has  been  imposed  upon  the  relator's  property  situated  in  New 
Orleans  and  New  .Jersey,  we  must  first  determine,  that  if  he  resided 
there,  and  the  same  goods  and  chattels  were  located  here,  they  could 
not  be  taxed  as  being  within  the  State.  Such  a  determination  I  am 
satisfied  would  contravene  the  plain  letter  of  the  statute  as  well  as  all 
sound  principles  underlying  the  subject.^ 

^  The  remainder  of  the  opinion  is  omitted. 

Ace.  Dunleith  v.  Rogers,  53  111.  45  ;  Leonard  v.  New  Bedford,  16  Gray,  292;  S.  v. 
Ross,  23  X.  J.  L.  517  ;    Hardesty  v.  Fleming,  57  Tex.  395. 

"We  have  no  difficulty  in  disposing  of  the  last  condition  of  the  question,  namely: 
the  fact,  if  it  be  a  fact,  that  the  pioperty  was  owned  by  persons  residing  in  another 
State.;  for,  if  not  exempt  from  taxation  for  other  reasons,  it  cannot  be  exempt  by 
reason  of  being  owned  by  non-residents  of  the  State.  We  take  it  to  be  a  point  settled 
beyond  all  contradiction  or  question,  that  a  State  has  jurisdiction  of  all  persons  and 
things  within  its  territory  which  do  not  belong  to  some  other  jurisdiction,  such  as  the 
representatives  of  foreign  governments,  with  their  houses  and  effects,  and    property 


SECT,  n.]  SCOLLAKD  V.  AMEEICAN   FELT  CO.  59 

SCOLLARD   V.   AMERICAN   FELT   CO. 
Supreme  Judicial  Court  of  Massachusetts.     1907. 

[Reported  194  Mass.  127.] 

KInowlton,  C.  J.  This  petition  in  equity  is  brought  against 
the  defendant,  a  foreign  corporation,  under  the  St.  100;i,  c.  .'34:9, 
which  is  as  follows:  "  \Vhen  any  foreign  corporation  or  non-resident 
person  doing  business  in  the  Conniionwealth  sliall  for  sixty  days 
neglect,  refuse  or  omit  to  pay  a  tax  lawfully  assessed  and  payable, 
any  court  having  jurisdiction  in  equity  may  upon  petition  of  the 
collector  of  taxes  of  the  city  or  town  where  the  tax  is  assessed  re- 
strain said  corporation  or  person  from  doing  business  in  the  Com- 
monwealth until  said  tax,  with  all  incidental  costs  and  charges, 
sliall  have  been  paid.  Service  of  process  upon  any^uch  petition  may 
be  made  by  an  olFiccr  duly  qualilied  to  serve  process,  by  leaving  a 
duly  attested  copy  thereof  at  the  place  where  the  business  is  carried 
on."  It  appears  by  the  agreed  facts  that  the  defendant  had  goods, 
wares  and  merchandise,  and  stock  in  trade  in  Boston  on  J\lay  1, 
I'JUo,  wliich  the  assessors  undertook  to  tax.  It  is  also  agreed  that 
the  corporation  filed  no  return  of  its  taxable  property  with  the 
assessors  for  that  year.  One  of  the  assessors  therefore  estimated 
the  value  of  its  property  subject  to  taxation.  Plainly  this  property 
was  rightly  taxed  under  the  St.  1903,  c.  437,  §  71,  unless  the  pro- 
vision in  the  last  part  of  tliis  section,  that  the  taxes  "shall  be 
assessed,  collected  and  paid  in  accordance  with  the  provisions  of 
chapters  twelve  and  thirteen  of  the  Revised  Laws,"  is  invalid. 

The  defendant  contends  that  this  tax  could  not  lawfully  be 
assessed  to  the  defendant,  but  that  it  should  have  been  assessed 
in  rem  against  the  particular  articles  of  personal  property  to  which 
it  refers.  We  are  of  opinion  that  this  contention  is  unfounded.  In 
the  first  place  the  defendant  concedes,  and  there  is  no  doubt,  that 
personal  property  may  be  separated  from  the  domicil  of  the  owner 
for  purposes  of  taxation,  and  may  be  taxed  wherever  it  is  kept  for 
use.  Tappan  v.  Merchants'  National  Bank,  19  Wall.  490,  499. 
Pullman's  Palace  Car  Co.  v.  Pennsylvania,  141  U.  S.  18,  22,  and 
cases  cited.  Bristol  v.  Washington  County,  177  TJ.  S.  133.  Nor  is 
there  any  good  reason  why  the  tax  should  not  be  assessed  to  the 
owner  in  such  cases.  It  should  be  paid  by  him,  as  it  is  founded 
upon  his  ownership  of  the  property  taxed,  and  it  undoubtedly  can  be 
collected  out  of  the  property,  if  that  can  be  found  within  the  juris- 
diction. Taxes  so  assessed  liave  been  held  valid  in  this  Common- 
wealth.   Blackstone  Manufacturing  Co.  v.  Blackstone,  13  Gray,  488. 

belonging  to  or  in  the  use  of  the  Government  of  the  United  States.  If  the  owner  of 
personal  property  within  a  State  resides  in  another  State  which  taxes  him  for  that 
property  as  part  of  his  general  estate  attached  to  his  person,  this  action  of  the  latter 
State  docs  not  in  the  least  affect  the  right  of  the  State  in  which  the  property  ia 
situated  to  tax  it  also.  It  is  hardly  necessary  to  cite  authorities  on  a  point  so  elemen- 
tary." —  BRAnLEY,  J.,  in  Coe  i;.  Errol,  116  U.  S.  517  (1S80).  Ace.  Wiukley  v.  New- 
ton, 67  N.  H.  80;  36  Ml.  610.  —  Eu. 


60  CAKSTAIRS    V.    COCIIRAJ^.  [cHAP.    II. 

Boston  Loan  Co.  v.  Boston,  137  Mass.  332.  Lamson  Consolidated 
Store  Service  Co.  v.  Boston,  170  Mass.  354.  If  the  question  were 
whether  such  a  tax  could  be  made  the  foundation  of  a  personal 
judgment  in  an  action  at  law  against  the  owner,  other  considerations 
would  be  pertinent.  See  Bristol  v.  AVashington  County,  177  U.  S. 
133;  Dewey  v.  Des  Moines,  173  U.  S.  204;  New  York  v.  McLean, 
170  N.  Y,  374.  WTiether  collection  could  be  made  by  such  an  action 
brought  by  the  collector  against  the  owner,  it  is  unnecessary  to  de- 
cide ;  for  if  one  part  of  the  statute  in  regard  to  collection  is  invalid, 
we  tliink  it  separable  from  the  rest,  on  the  ground  that  the  Legis- 
lature probably  would  have  enacted  the  rest  without  it,  if  the  ques- 
tion of  its  validity  had  been  considered.  See  Edwards  v.  Bruorton, 
184  Mass.  529;  Commonwealth  v.  Petranich,  183  Mass.  217;  Com- 
monwealth V.  Anselvich,  186  Mass.  376,  379.  Upon  the  facts  agreed, 
the  tax  appears  to  have  been  assessed  properly. 


CARSTAIKS  V.  COCHRAN. 

SUPEEME    COUET  OF   THE  UNITED   STATES.      1904. 
[Reported  193  U.  8.  10.] 

By  chap.  704  of  the  Laws  of  Maryland,  1892,  as  amended  by 
chap.  320,  Laws  1900,  the  general  assembly  of  that  State  provided 
for  the  assessment  and  collection  of  taxes  on  liquors  in  bonded  ware- 
houses within  the  State.  The  proprietors  of  such  warehouses  were 
required  to  pay  the  taxes  and  given  a  lien  on  the  property  therefor. 
This  legislation  was  sustained  by  the  Court  of  Appeals  of  the  State, 
95  Md.  488,  to  review  whose  judgment  this  writ  of  error  was  sued 
out. 

Brewer,  J.  That  the  statutes  in  question  do  not  conflict  with 
the  Constitution  of  IVIaryland  is  settled  by  the  decision  of  its  highest 
court.  Merchants'  Bank  v.  Pennsylvania,  167  U.  S.  461,  and  cases 
cited;  Backus  v.  Ft.  Street  Union  Depot  Co.,  169  U.  S.  557,  566; 
Rasmussen  v.  Idaho,  181  U.  S.  198,  200. 

A  state  has  the  undoubted  power  to  tax  private  property  having 
a  situs  within  its  territorial  limits,  and  may  require  the  party  in 
possession  of  the  property  to  pay  the  taxes  thereon.  "Unless  re- 
strained by  provisions  of  the  Federal  Constitution,  the  power  of  the 
State  as  to  the  mode,  form,  and  extent  of  taxation  is  unlimited, 
where  the  subjects  to  which  it  applies  are  within  her  jurisdiction." 
State  Tax  on  Foreign-held  Bonds,  15  Wall.  300,  319.  "Statutes 
sometimes  provide  that  tangible  personal  property  shall  be  assessed 
wherever  in  the  State  it  may  be,  either  to  the  owner  himself  or  to 
the  agent  or  other  person  having  it  in  charge;  and  there  is  no  doubt 
of  the  right  to  do  this,  whether  the  owner  is  resident  in  the  State  or 
not."  1  Coolev  on  Taxation,  3d  erl.  p.  653.  See  also  Coe  v.  Errol, 
116  U.  S.  517;  Marye  v.  Baltimore  &  Ohio  Railroad,  127  U.  S.  117, 
123 ;  Pullman's  Car  Co.  v.  Pennsylvania,  141  U.  S.  18 ;  Ficklen  v. 
Shelby  County,  145  U.  S.   1,  22;  Savings  Society  v.  Multnomah 


SECT.     II.]  SELLIGEE    V.    KENTUCKY.  CI 

County,  169  U.  S.  431,  427;  New  Orleans  v.  Stempel,  175  U.  S. 
301);  Board  of  Assessors  v.  Comptoir  National,  191  U.  S.  388;  Na- 
tional Bank  v.  Cornmonwealtli,  9  Wall.  353 ;  Merchants'  Bank  v. 
Pennsylvania,  167  U.  S.  461. 

That  under  Federal  legislation  distilled  spirits  may  be  left  in  a 
warehouse  for  several  years,  tliat  there  is  no  specific  provision  in  the 
statutes  in  question  giving  to  the  proprietor  who  pays  the  taxes  a 
right  to  recover  interest  thereon,  and  that  for  spirits  so  in  bond 
negotiable  warehouse  receipts  have  been  issued,  do  not  affect  the 
question  of  the  power  of  the  State.  The  State  is  under  no  obliga- 
tion to  make  its  legislation  conformable  to  the  contracts  which  the 
proprietors  of  bonded  warehouses  may  make  with  those  who  store 
spirits  therein,  but  it  is  their  business,  if  they  wish  further  protec- 
tion than  the  lien  given  by  the  statute,  to  make  their  contracts 
accordingly. 

We  see  no  error  in  the  judgment  of  the  Court  of  Appeals,  and  it  is 

Affirmed. 


SELLIGER  V.  KENTUCKY. 
Supreme  Court  of  the  Uxited  States.     1909. 

{Reported  213   U.  8.  200.] 

Holmes,  J.  This  is  a  proceeding  to  recover  back-taxes  on  personal 
property  of  the  plaintiff  in  error,  hereafter  called  the  defendant.  He 
pleaded  that  he  did  own  certain  barrels  of  whiskey  which  he  did  not 
list  for  the  years  in  question,  but  that  he  had  exported  them  to  Bre- 
men and  Hamburg,  in  Germany,  for  sale  abroad,  and  that  the  State 
was  forbidden  to  tax  them,  both  because  they  were  exports,  U.  S. 
Const.,  Art.  I.  §  10,  and  because  their  permanent  situs  was  outside 
the  State.  Fourteenth  Amendment.  Delaware,  Lackawanna  &  AYest- 
ern  E.  K.  Co.  v.  Pennsylvania,  198  U.  S.  341.  Union  Refrigerator 
Transit  Co.  v.  Kentucky,  199  U.  S.  194.  The  plaintiff  replied,  deny- 
ing that  the  export  was  for  sale  and  tliat  the  situs  of  the  whiskey  was 
abroad.  It  alleged  that  tlie  defendant  was  a  citizen  and  resident  of 
Kentucky,  engaged  there  in  the  wholesale  whiskey  business,  and  that 
he  shipped  the  whiskey  to  Germany  merely  to  evade  revenue  and  ad 
valorem  taxes  on  the  same.  It  alleged  further  that  the  defendant  re- 
mained the  owner  and  in  possession  of  the  whiskey,  except  such 
portion  as  he  reshippcd  to  himself  or  to  purchasers  in  the  United 
States,  that  while  the  whiskey  remained  in  the  German  warehouses 
he  held  the  wareliouse  receipts,  used  them  as  collaterals  and  traded 
in  them,  and  that  the  barrels  of  whisker  sold  by  him  were  mostly 
returned  to  the  State  of  Kentucky,  and  all  to  the  United  States.  The 
court  of  first  instance  held  that  the  whiskey  was  exempt  on  both  tho 
grounds  taken  bv  the  defendant.  On  appeal  to  the  State  circuit 
court  for  the  countv,  tho  judgment  was  affirmed  on  the  ground  that 
the  situs  of  the  whiskev  was  outside  the  State.  A  further  appeal  was 
taken  to  the  Court  of  Appeals,  and  that  court,  accepting  the  fact  that 


62  SELLIGEK    V.    KENTUCKY.  [CHAP.  n. 

the  whiskey  was  beyond  the  taxing  power  of  Kentucky,  nevertheless 
sustained  the  tax  as  a  tax  on  the  warehouse  receipts.  The  case  then 
was  brought  by  writ  of  error  to  this  court. 

We  think  that  we  have  stated  the  elt'ect  of  the  pleadings  fairly, 
and  it  will  be  observed  that  the  plaiutilf's  claim  was  of  a  right  to  tax 
the  whiskey,  the  warehouse  receipts  being  mentioned  only  to  corrobo- 
rate the  plaintitf's  contention  as  to  the  true  domicil  of  the  goods. 
After  the  decision,  the  amount  of  whiskey  for  which  the  defend- 
ant held  German  warehouse  receipts  at  the  material  times  and 
the  value  of  the  whiskey  were  agreed,  and  thereupon  the  court,  recit- 
ing tlie  agreement,  directed  a  judgment  for  taxes  due  upon  the  ware- 
house receipts,  valuing  them  at  the  agreed  value  "  per  barrel  of 
whiskey  embraced  in  them."  So  tliat  it  will  be  seen  that  the  effect 
is  the  same  as  if  the  whiskey  itself  had  been  taxed,  and  the  question 
is  whether,  by  such  a  dislocation  of  the  documents  from  the  things 
they  represent,  a  second  property  of  equal  value  is  created  for  taxing 
purposes,  which  can  be  reached  although  the  first  could  not.  Pos- 
sibilities similar  in  economic  principle  sometimes  have  to  be,  or  at 
least  have  been,  recognized,  but  of  course,  economically  speaking, 
they  are  absurd. 

We  are  dealing  with  German  receipts,  and  therefore  we  are  not 
called  upon  to  consider  the  effect  of  statutes  purporting  to  make  such 
instruments  negotiable.  Bonds  can  be  taxed  where  they  are  per- 
manently kept,  because  by  a  notion  going  back  to  very  early  law  the 
obligation  is,  or  originally  was,  inseparable  from  the  paper  or  parch- 
ment which  expressed  it.  Buck  v.  Beach,  206  U.  S.  392,  403,  413. 
That  case  and  the  authorities  cited  by  it,  show  how  far  a  similar  no- 
tion has  been  applied  to  negotiable  bills  and  notes.  But  a  warehouse 
receipt  does  not  depend  upon  any  peculiar  doctrine  for  its  effect.  A 
simple  receipt  merely  imports  that  goods  are  in  the  hands  of  a 
certain  kind  of  bailee.  But  if  a  bailee  assents  to  becoming  bailee  for 
another  to  whom  the  owner  has  sold  or  pledged  the  goods,  the  change 
satisfies  the  requirement  of  a  change  of  possession  so  far  as  to  vali- 
date the  sale  or  pledge.  Therefore  it  is  common  for  certain  classes 
of  bailees  to  give  receipts  to  the  order  of  the  bailor,  and  so  to  assent 
in  advance  to  becoming  bailee  for  any  one  who  is  brought  within  the 
terms  of  the  receipt  by  an  endorsement  of  the  same.  But  this  does  not 
give  the  instrument  the  character  of  a  symbol,  it  simply  makes  it  the 
means  of  bringing  about  what  is  somewhat  inaccurately  termed  a 
change  of  possession,  upon  ordinary  legal  principles,  just  as  if  the 
goods  had  been  transported  to  another  warehouse.  Union  Trust  Co. 
V.  Wilson,  198  U.  S.  530,  536.  If  the  receipt  contains  no  clause  of 
assent  to  a  tranfer,  it  has  been  held  that  an  endorsement  goes  no 
further  than  a  transfer  and  unaccepted  order  on  any  other  piece  of 
paper.     Ilallgarten  v.  Olflham,  135  Massachusetts  1. 

The  form  of  the  receipts  given  in  Germany  does  not  appear.  It 
does  not  appear  that  they  contained  any  assent  to  transfer,  unless 
by  conjecture  from  the  defendant's  testimony  that  he  pledged  them 
for  loans.  Even  that  conjecture  is  made  more  doubtful,  if  not  ex- 
cluded, by  the  findings  of  the  lower  courts.     It  does  not  appear  that 


«ECT.     II.  J  SELLIGEK    V.    KENTUCKY.  63 

the  Court  of  Appeals  made  a  different  finding  if  it  had  the  power  to 
do  so.  This  court  can  make  none.  There  is  no  presumption  that  we 
know  of  tiiat  the  transactions  took  one  form  or  liad  one  elfect  rather 
than  another. 

We  can  think  of  hut  two  ways  in  which  the  receipts  could  amount 
to  more  than  a  mere  convenience  for  getting  quasi-possession  of  tlie 
goods.  In  the  first  place,  liiey  might  express  or  imply  a  promise  to  he 
answerable,  or  carry  a  statutory  liability,  for  a  corresponding  amount 
in  case  the  property  referred  to  was  delivered  to  another  without  a 
surrender  of  the  receipts.  See  Mechanics'  &  Traders'  Ins.  Co.  v. 
Kigcr,  10;i  U.  S.  oo2.  .Such  a  promise  might  have  a  distinct  value  if 
the  promiser  had  credit.  But  it  cannot  he  assumed  on  this  record 
that  the  receipts  contained  it,  and  if  they  did,  even  then  the  value  of 
the  instrument  would  be  due  rather  to  the  assumption  that  the  bailee 
would  not  give  up  the  goods  without  a  return  of  it  than  to  the  prom- 
ise. The  value  of  the  promise  would  vary  with  the  promisor.  As  a 
key  to  the  goods  a  receipt  no  more  can  be  called  a  second  propertv  of 
equal  value  than  could  a  key  to  an  adamantine  safe  that  could  not  be 
opened  without  it  be  called  a  second  property  of  a  value  distinct  from 
but  equal  to  that  of  the  money  that  safe  contained.  The  receipt,  like 
the  key,  would  be  property  of  some  small  value  distinct  from  that  to 
which  it  gave  access.  But  it  would  not  be  a  counterpart,  doubling 
the  riches  of  the  owner  of  the  goods. 

In  the  second  place,  the  receipt  might  be  made  the  representative 
of  the  goods  in  a  practical  sense.  A  statute  might  ordain  that  a  sale 
and  delivery  of  the  goods  to  a  purchaser  without  notice  should  be 
invalid  as  against  a  subsequent  bona  fide  purchaser  of  the  receipt. 
We  need  not  speculate  as  to  how  the  law  would  deal  with  it  in  that 
event,  as  we  have  no  warrant  for  assuming  that  the  German  law  gives 
it  such  effect.  On  the  facts  before  us,  and  on  any  facts  that  the 
Court  of  Appeals  can  have  had  before  it,  tlie  receipts  cannot  be  taken 
to  have  been  more  than  one  of  several  keys  to  the  goods.  It  cannot 
be  assumed  that  a  good  title  to  the  whiskey  could  not  have  been  given 
while  the  receipts  were  outstanding.  We  assume  that  tliey  made  it 
very  unlikely  that  it  would  be,  but  the  practical  probability  does  not 
make  the  instrument  the  legal  equivalent  of  the  goods.  We  take  it  to 
be  almost  undisputed  that  if  the  warehouses  were  in  Kentucky  the 
State  would  not  and  could  not  tax  both  the  whiskey  and  the  receipts, 
even  when  issued  in  Kentucky  form,  and  that  it  would  recognize  that 
the  only  taxable  object  was  the  whiskey.  The  relation  of  the  paper  to 
the  goods  is  not  changed  by  their  being  abroad,  and  the  only  question 
in  the  case  is  wliethor  the  paper  can  be  treated  as  property  equivalent 
in  value  to  the  goods,  because  in  some  way  it  represents  them. 

We  state  the  question  as  we  have  stated  it  because  that  is  the  one 
that  is  raised  by  the  decision  under  review.  It  would  be  a  mere 
quibble  to  say  that  the  receipts,  as  paper,  had  an  infinitesimal  value, 
that  they  acquired  a  substantial  one.  nlthoncrh  much  less  than  that 
of  the  whiskey,  because  of  their  prncticil  use,  and  that  this  court 
is  not  concerned  with  a  mere  overvaluation.  The  tax  is  imposed  on 
the  theory  that  the  receipts  are  the  equivalents  of  the  goods  and  arc 


G4  HOPKINS  V.    BAKEK.  [CHAP.  II. 

taxable  on  that  footing,  although  the  goods  cannot  be  taxed.  Assum- 
ing, as  the  Court  of  Appeals  assumed,  that  the  whiskey  is  exempt 
under  the  Constitution  of  the  United  States,  we  are  of  opinion  that 
the  protection  of  the  Constitution  extends  to  warehouse  receipts  lo- 
cally present  within  the  State.  What  was  said  by  Chief  Justice 
Tanoy  about  bills  of  lading  applies  to  them,  mutatis  mutandis:  "A 
duty  upon  that  is,  in  substance  and  effect,  a  duty  on  the  article  ex- 
ported." Almy  V.  California,  24  How.  169;  Fairbank  v.  United 
States,  181  U.  S.  283,  294.  We  discuss  the  case  on  the  facts  assumed 
by  the  Court  of  Appeals.  Whether  a  finding  would  have  been  war- 
ranted that  the  whiskey  still  was  domiciled  in  Kentucky,  or  for  any 
other  reason  was  not  exempt,  is  a  matter  upon  which  we  do  not  pass. 
See  New  York  Central  &  Hudson  River  E.  E.  Co.  v.  Miller,  202  U. 
S.  584,  597. 

Judgment  reversed. 


HOPKINS  V.  BAKEE. 
Court  of  Appeals  of  Maryland.     1894. 

[Reported  78  Md.  363.] 

BoYD^  J.  This  case  was  tried  in  the  Baltimore  City  Court  on  an 
agreed  statement  of  facts.  The  agreement  shows  that  Charles  J. 
Baker,  William  Baker,  Jr.,  and  Charles  E.  Baker,  compose  the  firm 
of  Baker  Bros,  and  Company ;  that  Charles  E.  Baker  is  a  resident  of 
Baltimore  City,  and  the  other  two  members  of  the  firm  are  residents 
of  Baltimore  County ;  that  Charles  J.  Baker  has  a  four-tenths  interest, 
and  the  other  two  have  each  a  three-tenths  interest,  in  the  firm.  It 
is  admitted  that  the  place  of  business  of  the  firm  is  on  Charles  street, 
in  Baltimore  City,  at  which  place  is  kept  the  stock  of  the  partnership, 
of  an  average  value  of  $80,000.00 ;  that  the  firm  has  been  assessed  by 
the  Appeal  Tax  Court  of  Baltimore  City  for  $80,000.00  on  their 
stock,  and  $750.00  on  their  horses  used  in  their  business,  and  taxed 
$1,393.95  for  State  and  City  taxes  for  1892. 

The  appellees  declined  to  pay  those  taxes,  but  were  willing  to  pay 
on  the  horses,  which  they  keep  permanently  in  the  city,  and  on  the 
three-tenths  interest  of  Charles  E.  Baker.  The  question  raised  by 
the  agreed  statement  of  facts  and  the  prayers  was  whether  taxes  could 
be  levied  and  collected  from  the  whole  stock  of  the  firm,  or  whether 
only  the  three-tenths  interest  of  Charles  E.  Baker  therein  was  liable. 

The  Court  below  decided  that  the  plaintiff  was  only  entitled  to 
recover  the  amount  of  taxes  due  for  the  horses  and  for  the  interest 
of  Charles  E.  Baker  in  the  whole  stock  of  the  partnership.  A  judg- 
ment was  entered  accordincrly  for  $432.38  with  interest  and  costs,  and 
the  plaintiff  appealed  to  this  Court. 

As  the  situs  of  personal  property  is  ordinarilv  the  place  of  residence 
of  the  owner,  tho  Constitution  provides  that  personal  property  should 
be  taxed  where  the  owner  hnnn  fide  resides  for  the  greater  part  of  the 
year;  but,  as  that  provision  alone  might  work  great  hardship  on  the 


SECT.    II.]  HOPKINS    V.    BAKEB.  65 

county  or  city  where  goods  and  chattels  of  the  owner  are  permanently 
located,  the  exception  was  made,  (joods  and  cliattels  permanently 
located  at  the  residence  of  the  owner  are  to  be  taxed  there,  so  what 
might  be  called  his  "floating"  goods  and  chattels  are  taxed  at  the 
place  of  his  residence,  because  they  have  no  actual  situs  of  tlieir  own, 
and  hence  tliat  of  their  owner  is  adopted,  but  such  goods  and  chattels 
as  compose  the  stock  in  trade  of  the  appellees  are  not  carried  back- 
wards and  forwards  between  Baltimore  County,  or  some  other  county 
and  the  City  of  Baltimore.  As  long  as  tliey  are  the  property  of  the 
appellees  they  are  located  in  Baltimore  City,  and  tliey  are  as  "  per- 
manently located"  there  as  such  goods  and  chattels  can  be  anywhere. 
They  are  not  manufactured  or  purchased  to  be  kept  as  long  as  they 
remain  in  existence.  The  separate  articles  constituting  the  stock  may 
continue  the  property  of  the  appellees  for  a  day,  a  week,  a  month,  a 
year,  or  longer,  but  until  they  are  sold  they  remain  permanently  in 
Baltimore,  and  are  not  moved  from  place  to  place.  That  is  clearly 
what  is  meant  by  "permanently  located"  —  not  that  the  goods  and 
chattels  must  remain  until  they  are  worn  out,  or  indefinitely.  The 
agreed  statement  of  facts  shows  that  the  average  value  of  the  stock 
carried  by  the  appellees  is  $80,000.00,  and  that  they  were  assessed 
for  that  amount.  In  other  words,  the  appellees  keep  constantly  on 
hand  at  their  place  of  business  in  Baltimore  City  $80,000.00  worth 
of  goods  and  chattels  in  the  shape  of  glass,  etc.  It  may  be  true  that 
$5,000.00  worth  of  glass  may  be  sold  and  shipped  away  today,  and 
another  lot  of  glass  worth  $5,000.00  may  be  substituted  for  it  today 
or  tomorrow,  but  the  stock  of  goods  and  chattels  of  the  value  of 
$80,000.00  is  kept  on  hand  —  is  permanently  located  at  their  place 
of  business.  It  is  not  necessary  to  itemize  the  stock  in  trade  when  it 
is  assessed.  The  assessors  examine  the  stock,  the  goods  and  chattels, 
and  fix  their  value  for  taxation,  just  as  they  do  the  furniture  or  other 
tangible  personal  property  at  the  respective  residences  of  the  appel- 
lees. If  the  contention  of  the  appellees  is  to  prevail  then  merchandise 
cannot  be  taxed  anywhere.  No  merchant  expects  to  keep  his  stock 
permanently  on  hand  in  the  sense  that  term  is  used  by  the  learned 
counsel  for  the  appellees. 

lie  expects  to  sell  as  soon  as  he  can  receive  his  price,  and  as  he 
sells  he-  replenishes  his  stock.  The  articles  are  changing  from  day  to 
da}^  but  the  stock,  which  represents  the  aggregate  of  the  goods  and 
chattels,  remains  about  the  same.  Yet  can  it  be  claimed  that  a  mer- 
chant who  resides  and  carries  on  his  business  in  Baltimore  is  not  to 
be  taxed  for  his  stock  in  trade?  A  reasonable  construction  must  be 
given  the  constitutional  provision,  and  we  must  bear  in  mind  the 
object  in  taxing  goods  and  chattels  permanently  located  in  the  city 
or  county  where  they  are  so  located. 

If  the  position  of  the  appellees  is  correct,  it  is  possible  to  have  hun- 
dreds of  thousands  of  dollars,  probably  millions,  of  tangible  personal 
propertv.  sroods  and  chattels,  within  the  Citv  of  Baltimore,  liaving 
the  benefit  of  its  police  and  fire  protection  from  year  to  year,  and  yet 
not  contribute  one  dollar  to  the  support  of  the  police  or  fire  depart- 
ments.   Merchants  transacting  business  in  Cumberland,  Hagerstown, 


66  COMMONWEALTH  V,   UNI02;   SllirBUlLDIiNG   CO.        [ciiAP,  II. 

Frederick,  Annapolis  and  otlier  incorporated  cities  and  towns  in  the 
counties  could  escape  all  municipal  taxes  on  their  stock  in  trade  by 
living  beyond  the  corporate  limits  of  those  cities  and  towns,  whilst 
those  living  within  such  cities  and  towns  must  pay  the  municipal  as 
well  as  the  State  and  county  taxes  on  their  stock  in  trade.  ISuch  a 
construction  of  the  law  would  encourage  fraud.  A  resident  of  a 
remote  county  might  carry  a  large  stock  in  trade  in  Baltimore  City, 
or  on  the  Eastern  Shore,  without  the  knowledge  of  the  authorities 
of  the  county  where  he  resided. 

We  recognize  fully  the  force  of  the  argument  of  counsel  for  the 
appellees  that  property  cannot  be  taxed  simply  because  it  may  seem 
inequitable  to  permit  it  to  escape  taxation.  But  when  Ave  are  called 
upon  to  construe  statutes  or  the  Constitution  on  this  subject,  it  is 
our  duty,  in  seeking  the  true  interpretation  of  language  used,  to 
place  a  reasonable  construction  upon  it,  and  to  bear  in  mind  the  fact 
that  our  Constitution  aimed  to  require  all  persons  to  bear  their  just 
share  of  the  burden  of  taxation. 

Judgment  reversed,  and  new  trial  awarded. 


COMMONWEALTH  v.  UNION  SHIPBUILDING  CO. 
Supreme  Court  of  Pennsylvania.     1921. 

[Reported  114  Atl.  257.] 

Frazer,  J.  Defendant  is  a  Pennsylvania  corporation,  with  its 
principal  office  in  the  city  of  Pittsburgh,  but  has  considerable  real 
and  personal  property  in  the  State  of  Maryland,  where  it  owns  and 
operates  a  shipbuilding  plant.  During  the  tax  year  of  1918,  it  had 
total  assets  amounting  to  $2,228,560.90,  of  which  $1,369,837.35 
represented  the  value  of  the  shipbuilding  plant,  $5,000  was  invested 
in  nontaxable  liberty  bonds,  and  the  remainder,  consisting  of  cash, 
accounts  receivable,  and  other  tangible  assets,  amounted  to  $854,- 
723.55.  The  capital  stock  of  the  company  is  $1,585,000  par  value, 
and  represents  its  actual  value.  In  assessing  the  capital  stock  tax 
for  the  year  1918,  the  auditor  general  based  his  assessment  pn  such 
portion  of  the  valuation  of  the  capital  stock  as  the  whole  taxable 
assets  in  Pennsylvania  bore  to  the  whole  assets  of  the  corporation. 
The  basis  of  assessment  was  thus  found  to  be  $607,897.  Defendant's 
contention  is  that  this  method  of  computation  is  erroneous,  and  that 
the  correct  method  is  to  deduct  from  the  value  of  the  entire  stock 
the  value  of  its  nontaxable  property,  to  wit.  the  tangible  propertv 
located  outside  the  State  and  the  liberty  bonds,  the  remainder, 
$210,162.65,  being  the  "nortion  taxable  in  Pennsylvania.  Under 
this  computation  it  will  be  observed  the  tax  is  much  less  than  that 
arrived  at  by  the  method  adopted  by  the  auditor  sreneral. 

The  rule  applied  bv  the  auditor  general  and  the  court  below  is 
similar  to  that  employed  in  determining  the  amount  of  taxation 
to  be  paid  bv  foreisn  corporations  having  property  invested  in  this 
State;  defendant,  however,  argiies  this  results  in  taxing  indirectly 


P 


SECT.    II.  J        COM MOiS  WEALTH    V.    UNION    SHIPBUILDING   CO.  07 

tangible  property  located  outside  the  State.  It  must  be  conceded 
that  a  tax  on  the  capital  of  a  corporation  is  a  tax  on  the  property 
in  which  that  capital  is  invested  (Commissioners  v.  Standard  Oil 
Co.,  101  Pa.  liy;,  and  that  a  tax  based  on  a  valuation  including 
property  situated  outside  the  State  is  improper  (D.,  L.  &  W.  li.  K. 
V.  reniisylvama,  VJ6  U.  S.  341,  25  Sup.  Ct.  G6'J,  4L>  L.  Ed.  lOT?). 
The  latter  case  relied  upon  by  defendant  is  not  coiitroUin*'-  here. 
The  question  there  was  whether  coal  mined  and  shipped  beyond 
the  jurisdiction  of  the  State  was  a  proper  subject  of  deduction  in 
assessing  the  value  of  the  capital  of  a  Permsylvania  corporation. 
It  was  held  the  coal  lost  its  situs  in  Pennsylvania  upon  l)eing  trans- 
ported to  another  State  for  tlie  purpose  of  sale,  and  was  tlicrefore 
beyond  the  taxing  power  of  tlie  State  as  specific  property,  and  could 
not  be  taxed  indirectly  by  calling  it  a  tax  on  capital  stock  represent- 
ing tliat  property.  No  question  was  tliere  involved  as  to  the  proper 
mode  of  computing  the  tax. 

In  the  present  case  no  direct  levy  is  made  on  property  held  in  a 
foreign  State,  nor  does  such  result  necessarily  follow  indirectly.  In 
fixing  the  proportion  of  the  tax  to  be  paid,  the  full  value  of  the 
property  located  outside  tlie  State  is  deducted  from  the  total  assets. 
This  does  not  have  the  effect  of  taxing  property  in  other  jurisdic- 
tions. It  permits  the  stock  of  corpo.-otions  created  by  the  laws  of 
this  State  to  be  taxed  on  its  full  value,  less  deductions  for  such 
property  actually  outside  the  State,  and  therefore  subject  to  taxation 
in  the  foreign  jurisdiction,  and  prevents  the  possibility  of  domestic 
corporations  escaping  taxation  altogether,  as  they  might  do  under 
the  plan  urged  by  defendant,  where  the  value  of  the  capital  stock 
is  less  than  the  valuo  of  total  assets  outside  the  State.  We  are  of 
opinion  the  method  of  assessment  adopted  by  the  court  below  is 
proper. 

The  judgment  is  affirmed. 


68     Pullman's  palace-car  co.  v.  Pennsylvania.       [chap.  ii. 


PULLMAN'S   PALACE-CAR  CO.   v.   PENNSYLVANIA. 

Supreme  Court  of  the  United  States.     1891. 
[Reported  141  United  States,  18.] 

Gray,  J.^  Upon  this  writ  of  error,  whether  this  tax  was  in  accord- 
ance with  the  law  of  Pennsylvania,  is  a  question  on  which  the  decision 
of  the  highest  court  of  the  State  is  conclusive.  The  onl}-  question  of 
which  this  court  has  jurisdiction  is  whether  the  tax  was  in  violation  of 
the  clause  of  the  Constitution  of  the  United  States  granting  to  Congress 
the  power  to  regulate  commerce  among  the  several  States.  The  plain- 
tiff in  error  contends  that  its  cars  could  be  taxed  only  in  the  State  of 
Illinois,  in  which  it  was  incorporated  and  had  its  principal  place  of 
business. 

No  general  principles  of  law  are  better  settled,  or  more  fundamental, 
than  that  the  legislative  power  of  every  State  extends  to  all  propert}' 
within  its  borders,  and  that  only  so  far  as  the  comit}'  of  that  State 
allows  can  such  propert}-  be  affected  by  the  law  of  an}'  other  State. 
The  old  rule,  expressed  in  the  maxim  mobilia  Hequuntur  fiersonam^  by 
which  personal  property  was  regarded  as  su])ject  to  the  law  of  the  own- 
er's domicile,  grew  up  in  the  Middle  Ages,  when  movable  property  con- 
sisted chiefly  of  gold  and  jewels,  which  could  be  easily  carried  b}'  the 
owner  from  place  to  place,  or  secreted  in  spots  known  only  to  himself. 
In  modern  times,  since  the  great  increase  in  amount  and  variety  of  per- 
sonal property  not  immediatel}'  connected  with  the  person  of  the  owner, 
that  rule  has  yielded  more  and  more  to  the  lex  situs,  the  law  of  the 
place  where  the  property  is  kept  and  used.     Green  v.  Van  Buskirk,  5 

^  Part  of  tlie  opinion  of  the  court  and  part  of  the  dissenting  ojiiuion  are  omitted.— 
Ed. 


SECT.    TT.]        PrT.T.MAN's    PAT-ATK-rATl   CO.    V.    PF.XXSYT.VANTA.'         CO 

Wall.  307,  and  7  Wall.  139  ;  Ilervey  v.  Rhode  Island  Locomotive  Works, 
93  U.  S.  664  ;  Hurkiiess  i-.  Russell,  118  U.  S.  GG3,  iJl'J  ;  Walworth  r. 
Harris,  129  U.  S.  356  ;  Story  ou  Coullict  of  Laws,  §  5aU  ;  Wharton  on 
Conflict  of  Laws,  §§  297-311.  As  observed  by  Mr.  Justice  Story,  in 
hi*  coinnK'utaries  just  cited,  •*  Although  movables  are  for  many  purposes 
to  be  deemed  to  have  no  situs,  except  that  of  the  domicile  of  tlie  owner, 
yet  this  being  but  a  legal  fiction,  it  yields,  whenever  it  is  necessary  for 
the  purpose  of  justice  that  the  actual  sUu.'i  of  the  thing  should  be  ex- 
amined. A  nation  within  whose  territory  any  personal  property  is 
actually  situate  has  an  entire  dominion  over  it  while  therein,  in  point 
of  sovereignty  and  jurisdiction,  as  it  has  over  immovalile  i)roperty 
situate  there." 

For  the  purposes  of  taxation,  as  has  been  repeatedly  aflirmed  by  this 
court,  personal  property  may  be  separated  from  its  owner ;  and  he  may 
be  taxed,  on  its  account,  at  the  place  where  it  is,  although  not  the 
place  of  his  own  domicile,  and  even  if  he  is  not  a  citizen  or  a  residi'nt 
of  the  State  which  imposes  the  tax.  Lane  County  v.  Oregon,  7  Wall. 
71,  77;  Railroad  Co.  v.  Pennsylvania,  15  Wall.  300,  323,  324,  328; 
Railroad  Co.  v.  Peniston,  18  Wall.  5,  29  ;  Tappau  v.  Merchants'  Hank, 
19  Wall.  490,  499  ;  State  Railroad  Tax  Cases,  92  U.  S.  575,  607,  GU8  ; 
Brown  v.  Houston,  114  U.  S.  622  ;  Coe  v.  Errol.  116  U.  S.  517,  524  ; 
Marye  v.  Baltimore  &  Ohio  Railroad.  127  U.  S.  117,  123. 

It  is  equally  well  settled  that  there  is  nothing  in  the  Constitution  or 
laws  of  the  United  States  which  prevents  a  State  from  taxing  personal 
property,  employed  in  interstate  or  foreign  commerce,  like  other  per- 
sonal property  within  its  jurisdiction.   .   .   . 

The  cars  of  this  company  within  the  State  of  Pennsylvania  are 
employed  in  interstate  commerce  ;  but  their  being  so  emfjloyed  does 
not  exempt  them  from  taxation  by  the  State  ;  and  the  State  has  not 
taxed  them  because  of  their  being  so  employed,  but  because  of  their 
being  within  its  territory  and  jurisdiction.  The  cars  were  continuously 
and  permanently  employed  in  going  to  and  fro  upon  certain  routes  of 
travel.  If  they  had  never  passed  beyond  the  limits  of  Pennsylvania,  it 
could  not  be  doubted  that  the  State  could  tax  them,  like  other  property, 
within  its  borders,  notwithstanding  they  were  employed  in  interstate 
commerce.  The  fact  that,  instead  of  stopping  at  the  State  boundary, 
they  cross  that  boundary  in  going  out  and  coming  back,  cannot  affect 
the  power  of  the  State  to  levy  a  tax  upon  them.  The  State,  having 
the  right,  for  the  purposes  of  taxation,  to  tax  any  personal  property 
found  within  its  jurisdiction,  without  regard  to  the  place  of  the  owner's 
domicile,  could  tax  the  specific  cars  wliieh  at  a  given  moment  were 
within  its  borders.  The  route  over  which  the  cars  travel  extending 
beyond  the  limits  of  the  State,  particular  cars  may  not  remain  within 
the  State  ;  but  the  com[)any  has  at  all  times  substantially  the  same 
number  of  cars  witliin  the  State,  and  continuously  and  constantly  uses 
there  a  portion  of  its  property  ;  and  it  is  distinctly  found,  as  matter  of 
fact,  that  the  company  continuously,  tliionutiout  the  periods  for  which 


TO     PFix:\rAN's  vM.xcT-rxn  rn.  r.  p-fa^-n-stt-vaatta.      JrirAP.  ir. 

these  taxes  were  levied,  earned  on  business  in  Pennsylvania,  and  had 
about  cue  lunulrod  cars  within  the  State. 

The  mode  which  the  State  of  I'ennsylvania  atioptcd,  to  ascertaiu  the 
proportion  of  the  company's  property  upon  which  it  sliould  be  taxed  in 
that  State,  was  by  taking  as  a  basis  of  assessment  such  proportion  of 
the  capital  stcjck  of  the  company  as  Llie  niunber  of  miles  over  which  it 
ran  cars  within  the  State  bore  to  the  wiiole  number  of  miles,  in  that 
and  other  States,  over  which  its  cars  were  run.  This  was  a  just  and 
equitable  method  of  assessment;  and,  if  it  were  adopted  by  all  the 
States  through  which  these  cars  ran,  the  company  would  be  assessed 
upon  the  whole  value  of  its  capital  stock,  and  no  more. 

Tlie  validity  of  this  mode  of  a[)portioning  such  a  tax  is  sustained  by 
several  decisions  of  this  court,  in  cases  which  canie  up  from  tiie  Circuit 
Courts  of  the  United  States,  and  in  whicli,  therefore,  the  jurisdiction 
of  this  court  extended  to  the  determination  of  the  whole  case,  and  was 
not  limited,  as  upon  writs  of  error  to  the  State  courts,  to  questions 
under  the  Constitution  and  laws  of  the  United  States. 

In  the  State  Railroad  Tax  Cases,  92  U.  S.  575,  it  was  adjudged  that 
a  statute  of  Illinois,  by  which  a  tax  on  the  entire  taxable  property  of  a 
railroad  corporation,  including  its  rolling  stock,  capital,  and  franchise, 
was  assessed  by  the  State  Board  of  Equalization,  and  was  collected  in 
eacli  municipality  in  proportion  to  the  length  of  the  road  within  it,  was 
lawful,  and  not  in  contlict  with  the  Constitution  of  the  State  ;  and  Mr, 
Justice  Miller,  delivering  judgment,  said  :  — 

"  Another  ol)jection  to  the  system  of  taxation  by  the  State  is,  that 
the  rolling  stock,  capital  stock,  and  franchise  are  personal  property, 
and  that  this,  with  all  other  personal  property,  has  a  local  .ntus  at  the 
principal  place  of  business  of  the  corporation,  and  can  be  taxed  by 
no  other  count}',  cit}-,  or  town,  but  the  one  where  it  is  so  situated. 
This  objection  is  based  upon  the  general  rule  of  law  that  personal 
property,  as  to  its  situs,  follows  the  domicile  of  its  owner.  It  maj'  be 
doubted  very  reasonably  whether  sucii  a  rule  can  be  applied  to  a  rail- 
road corporation  as  between  the  ditferent  localities  embraced  by  its 
line  of  road.  But,  after  all,  the  rule  is  merely  the  law  of  the  State 
which  recognizes  it ;  and  when  it  is  called  into  operation  as  to  prop- 
erty located  in  one  State,  and  owned  by  a  resident  of  another,  it  is 
a  rule  of  comity  in  the  former  State  rather  than  an  absolute  principle 
in  all  cases.  Green  v.  Van  Buskirk,  5  Wall.  312.  Like  all  other  laws 
of  a  State,  it  is,  therefore,  subject  to  legislative  repeal,  modification,  or 
limitation  ;  and  when  the  legislature  of  Illinois  declared  that  it  should 
not  prevail  in  assessing  personal  property  of  railroad  companies  for 
taxation,  it  sim{)ly  exercised  an  ordinary  function  of  legislation."  92 
U.  S.  607,  608. 

"It  is  farther  objected  that  the  railroad  track,  capital  stock,  and 
franchise  is  not  assessed  in  each  county  where  it  lies,  according  to  its 
value  there,  but  according  to  an  aggregate  value  of  the  whole,  on 
which  each  county,  city,  and  town  collects  taxes  according  to  the  length 


I 


SECT.    II.]        ITI.T^MAn's    PALACE-CAIt   CO,    V.    PEXXRYI.VANrA.  Tl 

of  the  track  within  its  limits."  "  It  may  well  he  donlitrd  whether 
any  better  motle  of  deteriiiiiiir)g  tiie  value  of  that  poilioii  of  the 
traci<  within  any  one  county  lias  been  devised,  than  to  ascertain  tlie 
value  of  the  whole  road,  and  apportion  the  value  within  the  county  by 
its  relative  length  to  the  whole."  "  Tiiis  court  has  expressly  lield  in 
two  cases,  where  the  road  of  a  corporation  ran  through  diirereiil  Stales, 
that  a  tax  upon  the  income  or  franchise  of  the  road  was  properly  ap- 
l)orlioned  by  taking  the  wh(jle  income  or  value  of  the  franchise,  and 
the  length  of  the  road  within  each  State,  as  the  basis  of  taxation. 
Delaware  Railroad  Tax,  18  Wall.  206;  Erie  Railroad  /•.  Pennsyl- 
vania,  21   Wall.  4'.)2."     '.(2  U.   S.   608,   611. 

So  in  Western  Union  Telegraj)h  Oo.  v.  Attorney-deneral  of  Massa- 
chusetts, 125  U.  S.  b'60,  this  court  upheld  the  validity  of  a  tax  im- 
posed by  the  State  of  Massachusetts  upon  the  capital  stock  of  a 
telegraph  company,  on  account  of  pioperty  owned  and  used  by  it 
within  the  State,  taking  as  the  basis  of  assessment  such  proportion 
of  the  value  of  its  capital  stock  as  the  length  of  its  lines  within  the 
State  boie  to  their  entire  length  throughout  the  country. 

Even  mori'  in  point  is  the  case  of  Marye  v.  Baltimore  &  Ohio 
Railroad,  127  U.  S.  117,  in  which  the  question  was  whether  a  rail- 
road company  incorpoi'ated  by  the  State  of  Maryland,  and  no  part  of 
whose  own  railroad  was  within  the  State  of  Virginia,  was  taxable 
under  general  laws  of  Virginia  upon  rolling  stock  owned  by  the 
company,  and  employed  upon  connecting  railroads  leased  by  it  in 
that  State,  yet  not  assigned  permanently  to  those  roads,  but  used 
interchangeably  upon  them  and  upon  roads  in  other  States,  as  the 
company's  necessities  required.  It  was  held  not  to  be  so  taxable, 
solely  because  the  tax  laws  of  Virginia  appeared  upon  their  face  to 
be  limited  to  railroad  corporations  of  that,  State;  and  Mr.  Justice 
Matthews,  delivering  the  unanimous  judg/n'ent  of  the  court,  said:  — 

"It  is  not  denied,  as  it  cannot  be,  that  the  State  of  Virginia  has 
rightful  power  to  levy  and  collect  a  tax  upon  such  property  used  and 
found  within  its  territorial  limits,  as  this  property  was  used  and 
found,  if  and  whenever  it  may  choose,  by  apt  legislation,  to  exert  its 
authority  over  the  subject.  It  is  quite  true,  as  the  siti'/i  of  the  Kalli- 
more  and  Ohio  Railroad  Compa:iy  is  in  the  State  of  Maryland,  that 
also,  upon  general  principles,  is  the  situs  of  all  its  personal  property; 
but  for  purposes  of  taxation,  as  well  as  for  other  purposes,  that  situs 
may  be  fixed  in  whatever  locality  the  property  may  be  brought  and 
used  by  its  owner  by  the  law  of  the  place  where  it  is  found.  If  the 
Baltimore  and  Ohio  Railroad  Company  is  permitted  by  the  State  of 
Virginia  to  bring  into  its  territory,  and  there  habitually  to  use  and 
employ  a  portion  of  its  movable  personal  property,  and  the  railroad 
company  chooses  so  to  do,  it  would  certainly  be  competent  and  legiti- 
mate for  the  State  to  impose  upon  such  properly,  thus  used  and 
employed,  its  fair  share  of  the  burdens  of  taxation  imposed  ujion 
similar  property  used  in  the  like  way  by  its  own  citizens.     And  such 


72       PULLMAN^S   PALACE-CAR   CO.    V.   PENNSYI>VAXIA.  [ciIAP.   TT. 

a  tax  might  be  properly  assessed  and  collected  in  cases  like  the 
present,  where  the  specitic  and  individual  items  of  property  so  used 
and  employed  were  not  continuously  the  same,  but  were  constantly 
changing,  according  to  the  exigencies  of  the  business.  In  such 
cases,  the  tax  might  be  fixed  by  an  appraisement  and  valuation  of 
the  average  amount  of  the  property  thus  habitually  used,  and  col- 
lected by  distraint  upon  any  poi'tion  that  might  at  any  time  be 
found.  Of  course,  the  lawlessness  of  a  tax  upon  vehicles  of  trans- 
portation used  by  common  carriers  might  have  to  be  considered  in 
particular  instances  with  reference  to  its  operation  as  a  regulation 
of  commerce  among  the  States,  but  the  mere  fact  that  they  were 
employed  as  vehicles  of  transportation  in  the  interchange  of  inter- 
state commerce  would  not  render  their  taxation  invalid."  127  U.  S. 
123,  124. 

For  these  reasons,  and  upon  these  authorities,  the  court  is  of  opin* 
ion  that  the  tax  in  question  is  constitutional  and  valid.  The  result 
of  holding  otherwise  would  be  that,  if  all  the  States  should  concur  in 
abandoning  the  legal  fiction  that  personal  property  has  its  situs  at 
the  owner's  domicile,  and  in  adopting  the  system  of  taxing  it  at  the 
place  at  which  it  is  used  and  by  whose  laws  it  is  protected,  property 
employed  in  any  business  requiring  continuous  and  constant  move- 
ment from  one  State  to  another  would  escape  taxation  altogether. 

Judgment  affirmed. 

Mk.  Justice  Bradley,  with  whom  concurred  Mr.  Justice  Field  and 
Mr.  Justice  Harlan,  dissenting. 

I  dissent  from  the  judgment  of  the  court  in  this  case,  and  will  state 
brietiy  in}'  reasons.  I  concede  that  all  property,  personal  as  well  as 
real,  within  a  State,  and  belonging  there,  maj'  be  taxed  by  the  State. 
Of  that  there  can  be  no  doubt.  But  where  property  does  not  belong  in 
the  State  another  question  arises.  It  is  the  question  of  the  jurisdiction 
of  the  Slate  over  the  property.  It  is  stated  in  the  opinion  of  the  court 
as  a  fundamental  proposition  on  which  the  opinion  reall}'  turns  that  all 
personal  as  well  as  real  property  within  a  State  is  subject  to  the  laws 
thereof.  I  conceive  that  that  proposition  is  not  maintainable  as  a  gen- 
eral and  absolute  proposition.  Amongst  independent  nations,  it  is 
true,  persons  and  property  within  the  territory  of  a  nation  are  subject 
to  its  laws,  and  it  is  responsible  to  other  nations  for  any  injustice  it 
may  do  to  the  persons  or  property  of  such  other  nations.  This  is  a 
rule  of  international  law.  But  the  States  of  this  government  are  not 
independent  nations.  There  is  such  a  thing  as  a  Constitution  of  the 
United  States,  and  there  is  such  a  thing  as  a  government  of  the  United 
States,  and  there  are  many  things,  and  many  persons,  and  many  articles 
of  propert}'  that  a  State  cannot  lay  the  weight  of  its  finger  upon,  because 
it  would  l)e  contrary  to  the  Constitution  of  the  United  States.  Cer- 
tainly, property  merely  carried  through  a  State  cannot  be  taxed  by  the 
State.     Such  a  tax  would  be  a  duty  —  which  a  State  cannot  impose. 


SECT.  II.]      Pullman's  i'alace-oar  co.  v.  penxsylvama.       7.'* 

If  a  drove  of  cattle  is  driven  tlirough  Pennsylvania  from  Illinois  to 
New  York,  for  the  pnrpose  of  being  sold  in  New  York,  whilst  in 
Pennsylvania  it  may  be  subject  to  the  police  regulations  of  the  State, 
but  it  is  not  subject  t(j  taxation  there.  It  is  not  generally  subject  to  the 
laws  of  the  Sl:ite  as  other  property  is.  So  if  a  train  of  cars  starts  at  ("in- 
ciunati  for  New  York  and  passes  through  J'ennsylvatiia,  it  may  be  subject 
to  the  police  regulations  of  that  State  whilst  within  it,  but  it  would  be 
repugnant  to  the  Constitution  of  the  United  States  to  tax  it.  We  have 
decided  this  ver}-  question  in  the  case  of  State  Freight  Tax,  15  Wall. 
232.  The  point  was  directly  raised  and  decided  that  property  on  its 
passage  through  a  State  in  tlie  course  of  interstate  commerce  cannot  be 
taxed  by  the  State,  because  taxation  is  incidentally  regulation,  and  a 
State  cannot  regulate  interstate  commerce.  The  same  doctrine  was 
recognized  in  Coe  r.  Errol,    116  U.  S.  517. 

And  surely  a  Stale  cannot  interfere  with  the  oflicers  of  the  United 
States,  in  the  performance  of  their  duties,  whether  acting  under  the 
Judicial,  Military,  Postal,  or  Revenue  Departments.  They  are  entirely 
free  from  State  control.  So  a  citizen  of  the  United  States,  or  any  other 
person,  in  the  performance  of  any  duty,  or  in  the  exercise  of  any  privi- 
lege, under  the  Constitution  or  laws  of  the  United  States,  is  absolutely 
free  from  State  control  in  relation  to  such  matters.  So  that  the  general 
proposition,  that  all  persons  and  personal  propert}'  within  a  State  is 
subject  to  the  laws  of  the  State,  unless  materially  modified,  cannot 
be  true. 

But,  when  personal  property  is  permanently  located  within  a  State 
for  the  purpose  of  ordinary  use  or  sale,  then,  indeed,  it  is  subject  to  the 
laws  of  the  State  and  to  the  burdens  of  taxation  ;  as  well  when  owned 
by  persons  residing  out  of  the  State,  as  when  owned  by  persons  resid- 
ing in  the  State.  It  has  then  acquired  a  situs  in  the  State  where  it  is 
found. 

A  man  residing  in  New  York  may  own  a  store,  a  factory,  or  a  mine 
in  Alabama,  stocked  with  goods,  utensils,  or  materials  for  sale  or  use 
in  that  State.  There  is  no  question  that  the  situs  of  personal  property 
so  situated  is  in  the  State  where  it  is  found,  and  that  it  may  bo  sub- 
jected to  double  taxation,  — in  the  State  of  the  owner's  residence,  as  a 
part  of  the  general  mass  of  his  estate  ;  and  in  the  State  of  its  situs. 
Although  this  is  a  consequence  which  often  bears  hardly  on  the  owner, 
yet  it  is  too  firmly  sanctioned  l)y  the  law  to  be  disturbed,  and  no  remedy 
seems  to  exist  but  a  sense  of  equity  and  justice  in  the  legislatures  of  the 
several  States.  The  rule  would  undoubtedly  be  more  just  if  it  made  the 
property  taxable,  like  lands  and  real  estate,  only  in  the  place  where  it 
is  permanently  situated. 

Personal  as  well  as  real  property  may  have  a  situs  of  its  own,  inde- 
pendent of  the  owner's  residence,  even  when  employed  in  interstate  or 
foreign  commerce.  An  office  or  warehouse,  connected  with  a  steamship 
line,  or  with  a  continental  railway,  may  be  provided  with  furniture  and 
all  the  apparatus  and  ap[)liances  usual  in  such  establishments.      Such 


74       rULLMAlN'^S   PALACE-CAB   CO.    V.    PENNSYT.VATTTA.  [CHAP.  TT. 

property-  would  be  subject  to  the  lex  rei  sitOB  and  to  local  taxation, 
tliougli  solely  devoted  to  the  piii[)oses  of  the  business  of  those  lines. 
But  the  shi[)s  that  traverse  the  sea.  and  the  cars  that  traverse  the  land, 
iu  those  lines,  being  the  vehicles  of  commerce,  interstate  or  foreign,  and 
intended  for  its  movement  from  one  State  or  country  to  another,  and 
having  no  fixed  or  permanent  situs  or  home,  except  at  the  residence  of 
the  owner,  cannot,  without  an  invasion  of  the  powers  and  duties  of  the 
federal  government,  be  subjected  to  the  burdens  of  taxation  in  the 
places  where  they  only  go  or  come  in  tlie  transaction  of  their  business, 
except  where  they  belong.  Hays  v.  Pacific  Mail  Steamship  Co.,  17 
How.  596  ;  Morgan  c.  Parham,  16  Wall.  471  ;  Transportation  Co.  v. 
AVheeling,  99  U.  S.  273.  To  contend  that  there  is  any  difference  be- 
tween cars  or  trains  of  cars  and  ocean  steamships  in  this  regard,  is  to 
lose  sight  of  the  essential  qualities  of  things.  This  is  a  matter  that 
does  not  depend  upon  the  affirmative  action  of  Congress.  The  regula- 
tion of  ships  and  vessels,  by  act  of  Congress,  does  not  make  them  the 
instruments  of  commerce.  They  would  be  equally  so  if  no  such  affirma- 
tive regulations  existed.  For  the  States  to  interfere  with  them  in  either 
case  would  be  to  interfere  with,  and  to  assume  the  exercise  of,  that 
power  which,  by  the  Constitution,  has  been  surrendered  by  the  States 
to  the  government  of  the  United  States,  namely,  the  power  to  regulate 
commerce. 

Reference  is  made  in  the  opinion  of  the  court  to  the  case  of  Railroad 
Company  v.  Maryland,  21  Wall.  456,  in  which  it  was  said  that  commerce 
on  land  between  the  different  States  is  strikingly  dissimilar  in  many  re- 
spects from  commerce  on  water ;  but  that  was  said  in  reference  to  the 
highways  of  transportation  in  the  two  cases,  and  the  difference  of  control 
which  the  State  has  in  one  case  from  that  which  it  can  possibly  have  in 
the  other.  A  railroad  is  laid  on  the  soil  of  the  State,  by  virtue  of  au- 
thority granted  by  the  State,  and  is  constantly  subject  to  the  police  juris- 
diction of  the  State  ;  whilst  the  sea  and  navigable  rivers  are  high- 
ways created  b}'  nature,  and  are  not  subject  to  State  control.  The 
question  in  that  case  related  to  the  power  of  the  State  over  its  own 
corporation,  in  reference  to  its  rate  of  fares  and  the  remuneration  it 
was  required  to  pay  to  the  State  for  its  franchises,  — an  entirely  differ- 
ent question  from  that  which  arises  in  the  present  case. 

Reference  is  also  made  to  expressions  used  in  the  opinion  in  Glouces- 
ter Ferry  Co.  v.  Pennsylvania,  114  U.  S.  196,  which,  standing  alone, 
would  seem  to  concede  the  right  of  a  State  to  tax  foreign  corporations 
engaged  in  foreign  or  interstate  commerce,  if  such  property  is  within 
the  jurisdiction  of  the  State.  But  the  whole  scope  of  that  opinion  is  to 
show  tliat  neither  the  vehicles  of  commerce  coming  within  the  State, 
nor  the  capital  of  such  corporations,  is  taxable  there  ;  but  only  the 
property  having  a  situs  there,  as  the  wharf  used  for  landing  passengers 
and  freight.  The  entire  series  of  decisions  to  that  effect  are  cited  and 
relied  on. 

Of  course  I  do  not  mean  to  saj'  that  either  railroad  cars  or  ships  are 


SECT.    II.]        I'L'LLMAX's    I'ALACK-CAU   CO.    V.    PENNSYLVANIA.  75 

to  be  free  from  taxation,  luit  I  do  say  that  tlu-y  are  iiwt  taxable  bv  those 
States  in  which  they  uru  (jiily  tiaiisiently  present  in  the  traii.suetion  of 
their  coiuniereial  operations.  A  British  ship  eoniing  to  tlie  harbor  of 
New  York  from  Liverpool  ever  so  regularly  and  spending  half  its  time 
(when  not  on  the  ocean)  in  that  harbor,  cannot  be  taxed  by  the  State 
of  New  York  (harbor,  pilotage,  and  quarantine  dues  not  being  taxes). 
So  New  Yoiic  ships  plying  regularly  to  the  port  of  New  Orleans,  so 
that  one  of  the  line  may  be  always  lying  at  the  latter  port,  cannot  be 
taxed  by  the  State  of  Louisiana.  (See  cases  above  cited).  No  more 
can  a  train  of  cars  belonging  in  Pennsylvania,  and  running  regularly 
from  Philadelphia  to  New  York,  or  to  ('hicago,  be  taxed  by  the  State 
of  New  York,  in  the  one  case,  or  by  Illinois,  in  the  other.  If  it  may 
lawfully  be  taxed  by  these  States,  it  may  lawfully  be  taxed  by  all  the 
intermediate  States,  New  Jersey,  Ohio,  and  Indiana.  And  then  we 
should  have  back  again  all  the  confusion  and  competition  and  State 
jealousies  which  existed  before  the  adoption  of  the  Constitution,  and 
for  putting  an  end  to  which  the  Constitution  was  adopted. 

In  the  o[)inion  of  the  court  it  is  suggested  that  if  all  the  States  should 
adopt  as  equitable  a  rule  of  proportioning  the  taxes  on  the  Pullman 
Company  as  that  adopted  by  Pennsylvania,  a  just  system  of  taxation 
of  the  whole  capital  stock  of  the  comiiany  would  be  the  result.  Yes, 
if — !  But  Illinois  may  tax  the  company  on  its  whole  capital  stock. 
Where  would  be  the  equity  then  ?  This,  however,  is  a  consideration 
that  cannot  be  compared  with  the  question  as  to  the  power  to  tax  at 
all,  —  as  to  the  relative  power  of  the  State  and  general  governments 
over  the  regulation  of  internal  commerce,  —  as  to  the  right  of  theStates 
to  resume  those  powers  which  have  been  vested  in  the  government  of 
the  United  States. 

It  seems  to  me  that  the  real  question  in  the  present  case  is  as  to  the 
situs  of  the  cars  in  question.  They  are  used  in  interstate  commerce, 
between  Pennsylvania,  New  York,  and  the  Western  States.  Their  legal 
situs  no  more  depends  on  the  States  or  places  where  the}'  are  carried  in 
the  course  of  their  operations  than  would  that  of  an}'  steamboats  em- 
ployed by  the  Pennsylvania  Railroad  Company  to  carry  passengers  on 
the  Ohio  or  Mississippi.  If  such  steamboats  belonged  to  a  company 
located  at  Chicago,  and  were  cliangcd  from  time  to  time  as  their  condi- 
tion as  to  repairs  and  the  convenience  of  the  owners  might  render 
necessary,  is  it  possible  that  the  States  in  which  they  were  running  and 
landing  in  the  exercise  of  interstate  commerce  could  subject  them  to 
taxation?  No  one,  I  think,  would  contend  this.  It  seems  to  me  that 
the  cars  in  question  belonging  to  the  Pullman  Car  Company  arc  in  pre- 
cisely the  same  category. 


76  STATK    TAX    OX    FOREIGX-ITELD    BONDS.  [ciIAP.    IT. 


STATE  TAX  ON   FOREIGN-HELD   BONDS. 

Supreme  Court  of  the  United  States.     1873. 

[Reported  15  JFallace,  300.] 

Field,  J.^  The  question  presented  in  this  case  for  our  determination 
is  whether  the  eleventh  section  of  the  Act  of  Pennsylvania  of  May,  1868, 
so  far  as  it  applies  to  the  interest  on  bonds  of  the  railroad  company, 
made  and  pa3'able  out  of  the  State,  issued  to  and  held  by  non-residents 
of  the  State,  citizens  of  other  States,  is  a  valid  and  constitutional  exer- 
cise of  the  taxing  power  of  the  State,  or  whether  it  is  an  interference, 
under  the  name  of  a  tax,  with  the  obligation  of  the  contracts  between 
the  non-resident  bondholders  and  the  corporation.  If  it  be  the  former, 
this  court  cannot  arrest  the  judgment  of  the  State  court;  if  it  be  the 
latter,  the  alleged  tax  is  illegal,  and  its  enforcement  can  be  restrained. 

The  case  before  us  is  similar  in  its  essential  particulars  to  that  of  The 
Railroad  Company  v.  Jackson,  reported  in  7  Wallace.  There,  as  here, 
the  company  was  incorporated  by  the  legislatures  of  two  States,  Penn- 
sylvania and  Mar^'land,  under  the  same  name,  and  its  road  extended  in 
a  continuous  line  from  Baltimore  in  one  State  to  Sunbury  in  the  other. 
And  the  company  had  issued  bonds  for  a  large  amount,  drawing  inter- 
est, and  executed  a  mortgage  for  their  security  upon  its  entire  road,  its 
franchises  and  fixtures,  including  the  portion  lying  in  both  States. 
Coupons  for  the  different  instalments  of  interest  were  attached  to  each 
bond.  There  was  no  apportionment  of  the  bonds  to  any  part  of  the 
road  lying  in  either  State.  The  whole  road  was  bound  for  each  bond. 
The  law  of  Pennsylvania,  as  it  then  existed,  imposed  a  tax  on  money 
owing  by  solvent  debtors  of  three  mills  on  the  dollar  of  the  principal, 
payable  out  of  the  interest.  An  alien  resident  in  Ireland  was  the  holder 
of  some  of  the  bonds  of  the  railroad  company,  and  when  he  presented 
his  coupons  for  tlie  interest  due  thereon,  the  company'  claimed  the  right 
to  deduct  the  tax  imposed  l)y  the  law  of  Pennsylvania,  and  also  an  al- 
leged tax  to  the  United  States.  The  non-resident  refused  to  accept  the 
interest  with  these  deductions,  and  br(night  suit  for  the  whole  amount 
in  the  Circuit  Court  of  the  United  States  for  the  District  of  Maryland. 
That  court,  the  chief  justice  presiding,  instructed  the  jury  that  if  the 

*  The  opinion  ouly  is  given.  —  Ed. 


SKCT.  II.]       STATE  TAX  O.N  F(  )Ui;i<  i  N-Il  KLl*  BONDS.  77 

plaintiff,  when  he  purchased  the  bonds,  was  a  British  subject,  resident 
in  Ireland,  and  still  resided  there,  he  was  entitled  to  recover  the  amount 
of  the  coupons  without  deduction.  Tlie  verdict  and  judgment  were  in 
accordance  with  tills  instruction,  and  the  case  was  brouglit  here  for 
review. 

This  court  held  that  the  tax  under  the  law  of  Pennsylvania  could  not 
be  sustained,  as  to  permit  its  deduction  from  the  coupons  held  by  the 
plaintiff  would  be  giving  effect  to  the  acts  of  her  legislature  u[)on  prop- 
erty and  effects  lying  beyond  her  jurisdiction.  The  reasoning  by  wiiich 
the  learned  justice,  who  delivered  the  opinion  of  the  court,  reached  this 
conclusion,  may  be  open,  perhaps,  to  some  criticism.  It  is  not  per- 
ceived how  the  fact  that  tlic  mortgage  given  for  the  security  of  the  bonds 
in  that  case  covered  that  portion  of  the  road  whicli  extended  into  Mary- 
land could  affect  the  liability  of  the  bonds  to  taxation.  If  the  entire 
road  upon  which  the  mortgage  was  given  had  been  in  another  State,  and 
the  bonds  had  been  held  by  a  resident  of  Pennsylvania,  they  would  have 
been  taxable  under  her  laws  in  that  State.  It  was  the  fact  that  the  bonds 
were  held  by  a  non-resident  which  justified  the  language  used,  tiiat  to 
permit  a  deduction  of  the  tax  from  the  interest  would  be  giving  effect 
to  the  laws  of  Pennsylvania  upon  property  beyond  her  jurisdiction,  and 
not  the  fact  assigned  by  the  learned  justice.  The  decision  is,  neverthe- 
less, authority  for  the  doctrine  that  property  lying  beyond  the  jurisdic- 
tion of  the  State  is  not  a  subject  upon  wliich  her  taxing  power  can  be 
legitimately  exercised.  Indeed,  it  would  seem  that  no  adjudication 
should  be  necessar}'  to  establish  so  obvious  a  proposition. 

The  power  of  taxation,  liowever  vast  in  its  character  and  searching  in 
its  extent,  is  necessarily  limited  to  subjects  within  the  jurisdiction  of  the 
State.  These  subjects  are  persons,  pro[)erty,  and  business.  Whatever 
form  taxation  may  assume,  whether  as  duties,  imposts,  excises,  or  li- 
censes, it  must  relate  to  one  of  these  subjects.  It  is  not  possible  to 
conceive  of  any  other,  tliough  as  applied  to  them,  the  taxation  may  be 
exercised  in  a  great  variety  of  ways.  It  may  touch  property  in  every 
shape,  in  its  natural  condition,  in  its  manufactured  form,  and  in  its  va- 
rious transmutations.  And  the  amount  of  the  taxation  may  be  deter- 
mined by  the  value  of  the  property,  or  its  use,  or  its  capacity,  or  its 
productiveness.  It  may  touch  business  in  the  almost  infinite  forms  in 
which  it  is  conducted,  in  professions,  in  commerce,  in  manufactures, 
and  in  transportation.  Unless  restrained  by  provisions  of  the  Federal 
Constitution,  the  power  of  the  State  as  to  tlie  mode,  form,  and  extent 
of  taxation  is  unlimited,  where  the  subjects  to  which  it  applies  are  within 
her  jurisdiction. 

Corporations  may  be  taxed,  like  natural  persons,  upon  their  property 
and  business.  But  debts  owing  by  corporations,  like  debts  owing  by 
individuals,  are  not  property  of  the  debtors,  in  any  sense  ;  they  are 
obligations  of  the  debtors,  ami  only  possess  value  in  the  hands  of  the 
creditors.  With  them  tliey  are  property,  and  in  their  hands  they  may 
be  taxed.     To  call  debts  property  of  the  debtors  is  simply  to  misuse 


78  STATE   TAX   ON   FOKEIGN-llELD   BONDS.  [ciIAP.    II. 

terms.  All  the  property  thei'e  can  be  in  the  nature  of  things  in  debts 
of  corporations,  belongs  to  the  creditors,  to  whom  they  are  payable,  and 
follows  their  domicile,  wherever  tliat  may  be.  Their  debts  can  have  no 
locality  separate  from  the  parties  to  whom  they  are  due.  This  principle 
might  be  stated  in  many  dilferent  ways,  and  supi)orted  by  citations  from 
numerous  adjudications,  but  no  number  of  authorities,  and  no  forms  of 
expression  could  add  anything  to  its  obvious  truth,  which  is  recognized 
upon  its  simple  statement. 

The  bonds  issued  b}'  the  railroad  company  in  this  case  are  undoubt- 
edly property,  but  property  in  the  hands  of  the  holders,  not  property  of 
the  obligors.  So  far  as  they  are  held  by  non-residents  of  the  State, 
the}'  are  property  beyond  the  jurisdiction  of  the  State.  The  law  which 
requires  the  treasurer  of  the  company  to  retain  five  per  cent  of  the  inter- 
est due  to  the  non-resident  bondholder  is  not,  therefore,  a  legitimate 
exercise  of  the  taxing  power.  It  is  a  law  which  interferes  between  the 
compan}'  and  the  bondholder,  and  under  the  pretence  of  levying  a  tax 
commands  the  company  to  withhold  a  portion  of  the  stipulated  interest 
and  pay  it  over  to  the  State.  It  is  a  law  which  thus  impairs  the  obli- 
gation of  the  contract  between  the  parties.  The  oI)ligation  of  a  contract 
depends  upon  its  terms  and  the  means  which  the  law  in  existence  at  the 
time  afljords  for  its  enforcement.  A  law  which  alters  the  terms  of  a  con- 
tract b}'  imposing  new  conditions,  or  dispensing  with  those  expressed, 
is  a  law  which  impairs  its  obligation,  for,  as  stated  on  another  occasion, 
such  a  law  relieves  the  parties  from  the  moral  duty  of  performing  the 
original  stipulations  of  the  contract,  and  it  prevents  their  legal  enforce- 
ment. The  Act  of  Pennsylvania  of  May  1,  1868,  falls  within  this  de- 
scrii)tion.  It  directs  the  treasurer  of  every  incorporated  company  to 
retain  from  the  interest  stipulated  to  its  bondholders  five  per  cent 
upon  every  dollar,  and  pay  it  mto  the  treasury  of  the  Commonwealth. 
It  thus  sanctions  and  commands  a  disregard  of  the  express  provisions 
of  the  contracts  between  the  company  and  its  creditors.  It  is  only 
one  of  man}'  cases  where,  under  the  name  of  taxation,  an  oppressive 
exaction  is  made  without  constitutional  warrant,  amounting  to  little 
less  than  an  ai'bitrary  seizure  of  private  property.  It  is,  in  fact,  a 
forced  contribution  levied  upon  propert}^  held  in  other  States,  where  it 
is  subjected,  or  may  be  subjected,  to  taxation  upon  an  estimate  of  its 
full  value. 

The  case  of  Maltby  v.  The  Reading  and  Columbia  Railroad  Com- 
pany, decided  by  the  Supreme  Court  of  Pennsylvania  in  1866,  was 
referred  to  by  the  Common  Pleas  in  support  of  its  ruling,  and  is 
relied  upon  b\'  counsel  in  support  of  the  tax  in  question.  The  decision 
in  that  case  does  go  to  the  full  extent  claimed,  and  holds  that  bonds  ot 
corporations  held  by  non-residents  are  taxable  in  that  State.  But  it  is 
evident  from  a  perusal  of  the  opinion  of  the  court  that  the  decision 
proceeded  upon  the  idea  that  the  bond  of  the  non-resident  was  itsell 
property  in  the  State  because  secured  by  a  mortgage  on  property  there. 
"It  is   undoubtedly  true,"  said  the  court,  "  tliat  the   Legislature  ol 


SKCT.  II.]  STATE  TAX  ON  FORKir!N-Il  EI,D  BONDS.  70 

Pennsylvania  cannot  impose  a  personal  tax  upon  the  citizen  of  another 
State,  but  the  constant  practice  is  to  tax  property  within  our  jurisdic- 
tion whicli  belongs  to  non-residents."  And  again:  ^'Tiiere  nnist  be 
jiiiisdiction  over  either  the  property  or  liie  person  of  the  owner,  else 
the  power  cannot  be  exercised  ;  but  when  the  property  is  within  our 
jurisdiction,  and  enjoys  the  protection  of  our  State  government,  it  is 
justly  taxable,  and  it  is  of  no  moment  that  the  owner,  who  is  required 
to  pay  the  tax,  resides  elsewhere."  There  is  no  d<nd)t  of  tiie  correct- 
ness of  tliese  views.  l>ut  the  court  tiien  proceeds  to  state  that  the 
principle  of  taxation  as  tlie  correlative  of  protection  is  as  applicable 
to  a  non-resident  as  to  a  resident ;  that  the  loan  to  the  non-resident  is 
uiade  valuable  by  the  franchises  which  the  company  derived  from  the 
Commonwealth,  and  as  an  investment  rests  upon  State  authoritv,  and, 
therefore,  ought  to  contribute  to  tlie  su[)port  of  the  State  government. 
It  also  adds  that,  though  the  loan  is  for  some  purposes  subject  to  the 
law  of  the  domicile  of  the  holder,  "  yet,  in  a  very  high  sense,"  it  is 
also  property  in  Pennsylvania,  observing,  in  support  of  this  position, 
that  the  holder  of  a  bond  of  the  comi)any  could  not  enforce  it  except 
in  that  State,  and  that  the  mortgage  given  for  its  security  was  upon 
property  and  franchises  within  her  jurisdiction.  The  amount  of  all 
which  is  this :  that  the  State  which  creates  and  protects  a  corporation 
ought  to  have  the  right  to  tax  the  loans  negotiated  by  it,  tiiough  taken 
and  held  by  non-residents,  a  proposition  which  it  is  unnecessary  to  con- 
trovert. The  legality  of  a  tax  of  that  kind  would  not  be  questioned  if 
in  the  charter  of  the  company  the  imposition  of  the  tax  were  author- 
ized, and  in  tlie  bonds  of  the  company,  or  its  certificates  of  loan,  the 
liability  of  the  loan  to  taxation  were  stated.  The  tax  in  that  case 
would  be  in  the  nature  of  a  license  tax  for  negotiating  the  loan,  for  in 
whatever  manner  made  payable  it  would  ultimately  fall  on  the  company 
as  a  condition  of  effecting  the  loan,  and  parties  contracting  with  the 
company  would  provide  for  it  by  proper  stipulations.  But  there  is 
nothing  in  the  observations  of  the  court,  nor  is  there  anything  in  the 
opinion,  which  shows  that  the  bond  of  the  non-resident  was  property 
in  the  State,  or  tliat  tlie  non-resident  had  any  pro[)erty  in  the  State 
which  was  subject  to  taxation  within  the  principles  laid  down  liv  the 
court  itself,  which  we  have  cited. 

The  property  mortgaged  belonged  entircl}'  to  the  company,  and  so 
far  as  it  was  situated  in  Pennsylvania  was  taxable  there.  If  taxation 
is  the  correlative  of  protection,  the  taxes  which  it  there  paid  were  the 
correlative  for  the  protection  which  it  there  received.  And  neither  the 
taxation  of  the  property,  nor  its  protection,  was  augmented  or  dimin- 
ished by  the  fact  that  the  corporation  was  in  debt  or  free  from  debt. 
The  property  in  no  sense  belonged  to  the  non-resident  liondholder  or 
to  the  mortgagee  of  the  company.  The  mortgage  transferred  no  title  ; 
it  created  only  a  lien  npon  the  property.  Though  in  form  a  convev- 
ance,  it  was  both  at  law  and  in  equity  a  mere  security  for  the  debt 
That  such  is  the  nature  of  a  mortgage  in   Pennsvlvania  has  been  fre- 


80  STATE    TAX    OX    FOREI(iN-II  EJ.D    KOXDS.  [ciIAP.    II. 

quently  ruled  by  her  highest  court.  In  Witmer's  Appeal,  45  Penn.  S. 
463,  the  court  said:  "The  mortgagee  has  no  estate  in  the  land,  any 
more  than  the  judgment  creditor.  Both  have  liens  upon  it,  and  no 
more  than  liens."  And  in  that  State  all  possible  interests  in  lands, 
whether  vested  or  contingent,  are  subject  to  levy  and  sale  on  execution, 
yet  It  lias  been  held,  on  the  ground  that  a  mortgagee  has  no  estate  in  the 
lands,  that  the  mortgaged  premises  cannot  be  taken  in  execution  for 
his  debt.  In  Rickert  v.  Madeira,  1  Rawle,  329,  the  court  said:  "A 
mortgage  must  be  considered  either  as  a  chose  in  action  or  as  giving 
title  to  ihe  land  and  vesting  a  real  interest  in  the  mortgagee.  In  the 
latter  case  it  would  be  liable  to  execution  ;  in  the  former  it  would  not, 
as  it  would  fall  within  the  same  reason  as  a  judgment  bond  or  simple 
contract.  If  we  should  consider  the  interest  of  the  mortgagee  as  a 
real  interest,  we  must  carry  the  princii)Ie  out  and  subject  it  to  a  dower 
and  to  the  lien  of  a  judgment ;  and  that  it  is  but  a  chose  in  action,  a 
mere  evidence  of  debt,  is  apparent  from  the  whole  current  of  decisions." 
Wilson  V.  Shoenberger's  Executors,  31  Penn.  S.  295. 

Such  being  the  character  of  a  mortgage  in  Pennsylvania,  it  caimot 
])e  said,  as  was  justly  observed  by  counsel,  that  the  non-resident  holder 
and  owner  of  a  bond  secured  by  a  mortgage  in  that  State  owns  any 
real  estate  there.  A  mortgage  being  there  a  mere  chose  in  action,  it 
only  confers  upon  the  holder,  or  the  party  for  whose  beneflt  the  mort- 
gage is  given,  a  right  to  proceed  against  the  propert}'  mortgaged,  upon 
a  given  contingency,  to  enforce,  by  its  sale,  the  payment  of  his  de- 
mand. This  right  has  no  localit}-  independent  of  the  party  in  whom  it 
resides.  It  ma}-  undoubtedly  be  taxed  by  the  State  when  held  by  a 
resident  therein,  but  when  held  by  a  non-resident  it  is  as  much  beyond 
the  jurisdiction  of  the  State  as  the  person  of  the  owner. 

It  is  undoubtedl}'  true  that  the  actual  sittis  of  personal  property 
which  has  a  visible  and  tangible  existence,  and  not  the  domicile  of  its 
owner,  will,  m  many  cases,  determine  the  State  in  which  it  may  be 
taxed.  The  same  thing  is  true  of  public  securities  consisting  of  State 
bonds  and  bonds  of  munici[)al  bodies,  and  circulating  notes  of  bank- 
ing institutions ;  the  former,  by  general  usage,  liave  acquired  the  char- 
acter of,  and  are  treated  as,  property  in  the  place  where  they  are  found, 
though  removed  from  the  domicile  of  the  owner ;  the  latter  are  treated 
and  pass  as  money  wherever  they  are.  But  other  personal  propert}^ 
consisting  of  bonds,  mortgages,  and  debts  generally,  has  no  situs 
independent  of  the  domicile  of  tlie  owner,  and  certainly  can  have  none 
where  the  instruments,  as  in  the  present  case,  constituting  the  evi- 
dences of  debt,  are  not  separated  from  the  possession  of  the  owners. 

Cases  were  cited  by  counsel  on  the  argmiient  from  the  decisions  of 
the  highest  courts  of  several  States,  which  accord  with  the  views  we 
have  expressed.  In  Davenport  r.  The  Mississippi  and  Missouri  Rail- 
road Company,  12  Iowa,  539,  the  question  arose  before  the  Supreme 
Court  of  Iowa  whether  mortgages  on  propert}-  in  that  State  held  by 
non-residents  could  be  taxed  under  a  law  which  provided  that  all  prop- 


SECT.  II.]  STATK    lAX  OX  FOIlEKi  .V-ll  KI.I)  HON  OS.  SI 

erty,  loal  and  personal,  within  the  State,  with  certain  exceptions  uot 
material  to  the  present  case,  should  be  subject  to  taxation,  and  the 
court  said  :  — ■ 

"  Both  in  law  and  equity  the  mortgagee  has  only  a  chattel  interest. 
It  is  true  that  the  sihiti  of  the  property  mortgaged  is  within  the  juris- 
diction of  the  State,  but,  the  mortgage  itself  being  personal  property-, 
a  chose  in  action  attaches  to  the  person  of  the  owner.  It  is  agreed  by 
the  parties  that  the  owners  and  holders  of  the  mortgages  are  non- 
residents of  the  State.  If  so,  and  the  property  of  the  mortgage 
attaches  to  the  person  of  the  owner,  it  follows  that  these  mortgages 
are  not  property  within  the  State,  and  if  not  the}'  are  not- the  subject 
of  taxation." 

In  People  r.  Eastman,  25  Cal.  G03,  the  question  arose  before  the  Su- 
preme Court  of  California  whether  a  judgment  of  record  in  Marii)osu 
County  upon  the  foreclosure  of  a  mortgage  upon  property  situated  in 
that  county  could  be  taxed  there,  the  owner  of  the  judgment  being  a 
resident  of  San  Francisco,  and  the  law  of  California  requiring  all  prop- 
erty to  be  taxed  in  the  county  where  situated  ;  and  it  was  held  that  it 
was  not  taxable  there.  "The  mortgage,"  said  the  court,  "has  no 
existence  independent  of  the  thing  secured  by  it ;  a  payment  of  the 
debt  discharges  the  mortgage.  The  thing  secured  is  intangible,  and 
has  no  situs  distinct  and  apart  from  the  residence  of  the  holder.  It 
pertains  to  and  follows  the  person.  The  same  debt  may,  at  the  same 
time,  be  secured  by  a  mortgage  u[)on  land  in  every  county  in  the  State  ; 
and  i^  the  mere  fact  that  the  mortgage  exists  in  a  particular  county  gives 
the  propert}'  in  the  mortgage  a  sihts  subjecting  it  to  taxation  in  that 
county,  a  part}',  without  further  legislation,  might  be  called  upon  to 
pa}'  the  tax  several  times,  for  the  lien  for  taxes  attaches  at  the 
same  time  in  every  county  in  the  State,  and  the  mortgage  in  one 
county  may  be  a  different  one  from  that  in  another  although  the  debt 
secured  is  the  same." 

Some  adjudications  in  the  Supreme  Court  of  Pennsylvania  were  also 
cited  on  the  argument,  which  a|)pear  to  recognize  doctrines  inconsistent 
with  that  announced  in  iVIalLby  v.  Reading  and  Columbia  Railroatl 
Company,  particularly  the  case  of  McKeen  r.  The  County  of  North- 
ampton, 49  Penn.  S.  519,  and  the  case  of  Short's  Estate,  16  Id.  T),", 
but  we  do  not  deem  it  necessary  to  pursue  the  matter  further.  We 
are  clear  tliat  the  tax  cannot  be  sustained  ;  that  the  bonds,  being  held 
by  non-residents  of  the  State,  are  onlv  property  in  their  hands,  and 
that  they  are  thus  beyond  the  jurisdiction  of  the  taxing  power  of  the 
State.  Even  where  the  bonds  are  held  by  residents  of  the  State,  the 
retention  by  the  company  of  a  portion  of  the  stipulated  interest  can 
only  be  sustained  as  a  mode  of  collecting  a  tax  upon  that  species  of 
property  in  the  Slate.  When  the  ])ropeity  is  out  of  the  State  there 
can  then  be  no  tax  upon  it  for  whicli  the  interest  can  be  retained. 
The  tax  laws  of  Pennsylvania  can  have  no  extraterritorial  operation  : 
nor  can  any  law  of  that  State,  inconsistent  with   the  terms  of  a  con- 


82  STATE  TAX   ON   FOREIGN-HELD   BONDS.  [ciIAP.    ir. 

tract,  made  with  or  payable  to  parties  out  of  the  State,  have  any  effect 
upon  the  contract  whilst  it  is  in  the  hands  of  such  parties  or  other  non- 
residents. The  extraterritorial  invalidity  of  State  laws  discharging  a 
debtor  from  his  contracts  with  citizens  of  other  States,  even  though 
made  and  payable  in  the  State  after  the  passage  of  such  laws,  has  been 
judicially  determined  by  this  court.  Ogden  r.  Saunders,  12  Wheaton, 
21-4  ;  Baldwin  i:  Hale,  1  Wallace,  223,  A  like  invalidity  must,  on 
similar  grounds,  attend  State  legislation  which  seeks  to  change  the 
obligation  of  such  contracts  in  any  particular,  and  on  stronger  grounds 
where  the  contracts  are  made  and  payable  out  of  the  State. 

Judgment  reversed,  and  the  cause  i-emanded  for  further  j^roceed' 
ings^  in  conformity  with  this  opinion. 
Davis,  Cliffokd,  Millek,  and  Hunt,  JJ.,  dissenting. 


SKCT.  II.]  BLACKSTONK  V.    MILLEU.  83 


blackstonp:  v.  miller. 

Supreme  Court  of  the  Unitkd  States.     1903. 
[Reported  188  U.  vS.  189.] 

IloLMKs,  .7.  This  is  a  writ  of  error  to  the  Surrogate's  Court  of  the 
county  of  New  York.  It  is  l)rouglit  to  review  a  decree  of  the  court, 
sustauied  b}*  the  Appelhite  Division  of  tlie  Suj^reme  Court,  GD  App. 
Div.  127,  and  by  the  Court  of  Appeals,  171  X.  Y.  (582,  levying  a  tax 
on  tlie  transfer  by  will  of  certain  prc)|)erty  of  Timothy  li.  lilackstone, 
the  testator,  who  died  domiciled  in  Illinois.  The  property  consisted  of 
a  debt  of  SlO,(')y2.2 1,  due  to  the  deceased  by  a  firm,  and  of  the  net  sum 
of  $4,843,456.72,  held  on  a  deposit  account  by  tlie  United  States  Trust 
Company  of  New  York.  The  objection  was  taken  seasonably  upon  the 
rei'ord  that  the  transfer  of  this  pro[K'rty  could  not  be  taxed  in  New  York 
consistently  with  the  Constitution  of  the  United  States. 

The  deposit  in  question  represented  the  proceeds  of  railroad  stock 
sold  to  a  syndicate  and  handed  to  the  Trust  Company,  which,  by  arrange- 
ment with  the  testator,  hold  the  proceeds  subject  to  his  order,  paying 
interest  in  the  jneantiine.  Five  days'  notice  of  withdrawal  was  recpiired, 
and  if  a  draft  was  made  upon  the  company,  it  gave  its  check  upon  one 
of  its  banks  of  deposit.  The  fund  had  been  held  in  this  way  from 
March  31,  1899,  until  the  testator's  death  on  May  26,  1900.  It  is 
probable,  of  course,  that  he  did  not  intend  to  leave  the  fund  there 
forever  and  that  he  was  looking  out  for  investments,  but  he  had  not 
found  them  when  he  died.  The  tax  is  levied  under  a  statute  impos- 
ing a  tax  "upon  the  transfer  of  any  property,  real  or  personal.  .  .  . 
2.  When  the  transfer  is  by  will  or  intestate  law,  of  property  within  the 
State,  and  the  decedent  was  a  non-resident  of  the  State  at  the  time  of 
his  death."  Laws  of  1896,  c.  908,  §  220,  amended,  Laws  of  1897, 
c.  284;  3  Birdseye's  Stat.  3d  ed.  1901,  p.  3592.  The  whole  succession 
has  been  taxed  in  Illinois,  the  New  Y'ork  deposit  being  included  in  the 
appraisal  of  the  estate.  It  is  objected  to  the  New  York  tax  that  the 
property  was  not  within  the  State,  and  that  the  courts  of  New  York 
had  no  jurisdiction  ;  that  if  the  property  was  within  the  State  it  was 
only  transitorily  there,  Hays  /'.  Pacific  Mail  wSteamship  Co.,  17  How. 
596,  599,  600,  that  the  tax  impairs  the  obligation  of  contracts,  that  it 
denies  full  faith  and  credit  to  the  judgment  taxing  the  inheritance  in 
Illinois,  that  it  deprives  the  executrix  and  legatees  of  privileges  and 
immunities  of  citizens  of  the  State  of  New  York,  and  that  it  is  contrary 
to  the  Fourteenth  Amendment. 

In  view  of  the  State  decisions  it  must  be  assumed  that  the  New  York 
statute  is  intended  to  reach  the  transfer  of  this  property  if  it  can  be 
reached.  New  Orleans  '•.  Stempel,  175  U.S.  309,  316;  Morley  /•. 
Lake  Shore  &  Michigan  Southern  Railway  Co.,  146  U.  S.  162.  166. 
We  also  must  take  it  to  have  l)een  found  that  the  property  was  not  i/» 


,84:  BLACKSTONE  V.  :mij.ler.  [chap.  it. 

transitu  in  such  a  sense  as  to  withdraw  it  from  the  power  of  the  State, 
if  otherwise  the  right  to  tax  the  transfer  belonged  to  the  State.  The 
propert}-  was  delayed  within  the  jurisdiction  of  New  York  an  indefinite 
time,  which  had  lasted  for  more  than  a  year,  so  that  this  finding  at  least 
was  justified.  Kelley  v.  Rhoads,  188  U.  S.  1,  and  Diamond  Match  Co. 
V.  Village  of  Ontonagon,  188  U.  S.  84,  present  term.  Both  parties  agree 
with  the  plain  words  of  the  law  that  the  tax  is  a  tax  upon  the  transfer, 
not  upon  the  deposit,  and  we  need  spend  no  time  \\[)oi\  that.  Then-fore 
the  naked  question  is  whether  the  State  has  a  right  to  tax  the  transfer 
by  will  of  such  deposit. 

The  answer  is  somewhat  obscured  by  the  superficial  fact  that  New 
York,  like  most  other  States,  recognizes  the  law  of  the  domicil  as  the 
law  determining  the  right  of  universal  succession.  The  domicil,  natu- 
rally, must  control  a  succession  of  that  kind.  Universal  succession  is 
the  artificial  continuance  of  the  person  of  a  deceased  b}-  an  executor, 
heir,  or  the  like,  so  far  as  succession  to  rights  and  obligations  is  con- 
cerned. It  is  a  fiction,  the  historical  origin  of  which  is  familiar  to 
scholars,  and  it  is  this  fiction  that  gives  wliatever  meaning  it  has  to  the 
saving  mobilia  sequuntur  personam.  But  being  a  fiction  it  is  not  al- 
lowed to  ol)SCure  the  facts,  when  the  facts  become  important.  To  a 
consideralile,  although  more  or  less  varying,  extent,  the  succession  de- 
termined l)v  the  law  of  the  domicil  is  recognized  in  other  jurisdictions. 
But  it  liardly  needs  illustration  to  show  that  the  recognition  is  limited 
by  the  policy  of  the  local  law.  Ancillary  administrators  pay  the  local 
debts  before  turning  over  the  residue  to  be  distributed,  or  distributing 
it  tliemselves,  according  to  tlie  rules  of  the  domicil.  The  title  of  the 
principal  administrator,  or  of  a  foreign  assignee  in  bankruptcy,  another 
type  of  universal  succession,  is  admitted  in  but  a  limited  way  or  not  at 
all.  See  Crapo  v.  Kelly,  16  Wall.  610;  Chipman  v.  Manufacturers' 
National  Bank,   156  Mass.  147,  148,  149. 

To  come  closer  to  the  point,  no  one  doubts  that  succession  to  a  tan- 
gible chattel  may  be  taxed  wherever  the  property  is  found,  and  none 
the  less  that  the  law  of  the  situs  accepts  its  rules  of  succession  from  the 
law  of  the  domicil,  or  that  by  the  law  of  the  domicil  the  chattel  is  part 
of  a  universitas  and  is  taken  into  account  again  in  the  succession  tax 
there.  Eidman  r.  Martinez,  184  U.  S.  578,  586,  587,  592.  See  Mager 
V.  Grima.  8  How.  490,  493  ;  Coe  v.  Errol,  116  U.  S.  517,  524  ;  Pullman's 
Palace  Car  Co.  /'.  Pennsylvania,  141  U.  S.  18,  22;  Magoun  v.  Illinois 
Trust  &  Savings  Bank,  170  U.  S.  283;  New  Orleans  v.  Stempel,  175 
U.  S.  309  ;  Bristol  V.Washington  County,  177  U.  S.  133;  and  for  state 
decisions  Matter  of  Estate  of  Romaine,  127  N.  Y.  80  ;  Callahan  v. 
Woodbridge,  171  Mass.  593;  Greves  i-.  Shaw,  173  Mass.  205;  Allen 
V.  National  State  Bank,  92  Md  509. 

No  doubt  this  power  on  the  part  of  two  States  to  tax  on  diflferent  and 
more  or  less  inconsistent  principles,  leads  to  some  hardship.  It  may 
be  regretted,  also,  that  one  and  the  same  State  should  be  seen  taxing 
on  the  one  hand  according  to  the  fact  of  power,  and  on  the  other,  at 


f 


SECT.    II.]  BLACK.STONP:    V.    MILLKli.  S.'* 

the  same  time,  according  to  the  fiction  tliul.  in  succession?  after  death, 
mobilid  seqiiu7itur  personam  and  domicil  governs  the  wljole.  But 
these  inconsistencies  infringe  no  rule  of  constitutional  law.  Coe  i\ 
Errol,   HG  U.  S.  517,  o24  ;  Knowiton  v.  Moore,   178  U.  S.   11. 

The  question,  then,  is  narrowed  to  whether  a  distinction  is  to  be  tal<en 
between  tangible  chattels  and  the  deposit  in  this  case.  There  is  no 
doul>t  that  courts  in  New  York  and  elsewhere  have  been  loath  to  recog- 
nize a  distinction  for  taxing  [jurposes  between  what  commonly  is  called 
money  in  the  banl<  and  actual  coin  in  the  pocket.  The  practical  simi- 
larity more  or  less  has  obliterated  the  legal  difference.  Matter  of 
Hondayer,  150  N.  Y.  37  ;  New  Orleans  v.  Stem  pel,  175  U.  S.  309,  316  ; 
City  National  Bank  v.  Charles  Baker  Co.,  180  Mass.  40,  42.  In  view 
of  these  cases,  and  the  decision  in  the  present  case,  which  followed 
them,  a  not  very  successful  attempt  was  made  to  show  that  I)y  reason 
of  the  facts  which  we  have  mentioned,  and  others,  the  deposit  here  was 
unlike  an  ordinary  deposit  in  a  bank.  We  shall  not  stop  to  discuss 
this  aspect  of  the  case,  because  we  prefer  to  decide  it  upon  a  broader 
view. 

If  the  transfer  of  the  deposit  necessarily  depends  upon  and  involves 
the  law  of  New  York  for  its  exercise,  or,  in  other  words,  if  the  transfer 
is  subject  to  the  power  of  the  State  of  New  York,  then  New  York  may 
subject  the  transfer  to  a  tax.  United  States  r.  Perkins,  1G3  U.  S.  025, 
628,  629  ;  McCulloch  v.  Maryland,  4  Wheat.  316,  429.  But  it  is  plain 
that  the  transfer  does  depend  upon  the  law  of  New  York,  not  because 
of  any  theoretical  speculation  concerning  the  whereabouts  of  the  debt, 
but  because  of  the  practical  fact  of  its  power  over  the  person  of  the 
debtor.  The  principle  has  been  recognized  by  this  court  with  regard 
to  garnishments  of  a  domestic  debtor  of  an  absent  defendant.  Chicago, 
Rock  Island  &  Pacific  Ry.  Co.  v.  Sturm,  174  U.  S.  710.  See  Wyman  *•. 
Halstead,  109  U.  S.  654.  What  gives  the  debt  validity?  Nothing  but 
the  fact  that  the  law  of  the  place  whore  the  debtor  is  will  make  him  i)ay. 
It  does  not  matter  that  the  law  would  not  need  to  be  invoked  in  the 
particular  case.  Most  of  us  do  not  commit  crimes,  yet  we  nevertheless 
are  subject  to  the  criminal  law,  and  it  affords  one  of  the  motives  for  our 
conduct.  So  again,  what  enables  any  other  than  the  very  creditor  in 
proper  person  to  collect  the  debt?  The  law  of  the  same  place.  To  test 
it,  suppose  that  New  York  should  turn  back  the  current  of  legislation 
and  extend  to  debts  the  rule  still  applied  to  slander  that  actio  personalis 
moritiir  cum  perso7ia,  and  should  provide  that  all  debts  hereafter  con- 
tracted in  New  York  and  payable  there  should  be  extinguished  In*  the 
death  of  either  party.  Leaving  constitutional  considerations  on  one 
side,  it  is  plain  that  the  right  of  the  foreign  creditor  would  be  gone. 

Power  over  the  person  of  the  debtor  confers  jurisdiction,  we  repeat. 
And  this  being  so  we  perceive  no  better  reason  for  denying  the  right  of 
New  York  to  impose  a  succession  tax  on  debts  owed  by  its  citizens  than 
upon  tano^ble  chattels  found  within  the  State  at  the  time  of  the  death. 
The  maxim  mobilia  sequuntur  personam  has  no  more  truth  in  the  one 


86  BLACKSTOXE     T.     MILLER.  [ciIAr.    H. 

case  than  in  the  otlier.     AVlien  logic  and  the  policy  of  a  State  conflict 
with  a  fiction  due  to  historical  tradition,  the  fiction  must  give  way. 

There  is  no  conflict  between  our  views  and  the  point  decided  in  the 
case  reported  under  the  name  of  State  Tax  on  Foreign  Held  Bonds, 
15  Wall.  oOO.  The  taxation  in  that  case  was  on  the  interest  on  bonds 
held  out  of  the  State.  Bonds  and  negotiable  instruments  are  more  than 
mere!}"  evidences  of  debt.  The  debt  is  inseparable  from  the  paper  which 
declares  and  constitutes  it,  l)y  a  tradition  which  comes  down  from  more 
archaic  conditions.  Bacon  r.  Hooker,  177  Mass.  335,337.  Therefore, 
considering  only  the  place  of  the  property,  it  was  held  that  bonds  held 
out  of  the  State  could  not  be  reached.  The  decision  has  been  cut  down 
to  its  precise  point  b\'  later  eases.  Savings  &  Loan  Society  v.  Multno- 
mah Count}-,  169  U.  S.  421,  428;  New  Orleans  v.  Stempel,  175  U.  S. 
309,  319,  320. 

In  the  case  at  bar  the  law  imposing  the  tax  was  in  force  before  the 
deposit  was  made,  and  did  not  impair  the  obligation  of  the  contract,  if 
a  tax  otherwise  lawful  ever  can  be  said  to  have  that  effect.  Pinney  v. 
Nelson,  183  U.  S.  144,  147.  The  fact  that  two  States,  dealing  each  with 
its  own  law  of  succession,  both  of  which  the  plaintiff  in  error  has  to  in- 
voke for  her  rights,  have  taxed  the  right  which  the}-  respectively  confer, 
gives  no  cause  for  complaint  on  constitutional  grounds.  Coe  v.  Errol, 
116  U.  S.  517,  524  ;  Knowlton  v.  Moore,  178  U.  S.  53.  The  universal 
succession  is  taxed  in  one  State,  the  singular  succession  is  taxed  in 
another.  The  plaintiff  has  to  make  out  her  right  under  both  in  order 
to  get  the  money.  See  Adams  v.  Batchelder,  1 73  INIass.  258.  The 
same  considerations  answer  the  argument  tiiat  due  faith  and  credit 
are  not  given  to  the  judgment  in  Illinois.  Tlie  tax  does  not  deprive 
the  plaintiff  in  error  of  any  of  the  privileges  and  immunities  of  the 
citizens  of  New  York.  It  is  no  such  deprivation  that  if  she  had 
lived  in  New  York  the  tax  on  the  transfer  of  the  deposit  would  have 
been  part  of  the  tax  on  the  inheritance  as  a  whole.  See  Mager  v.  Grima, 
8  How.  490  ;  Brown  v.  Houston,  114  U.  S.  622,  635  ;  Wallace  v.  Myers, 
38  Fed.  Ivep.  184.  It  does  not  violate  the  Fourteenth  Amendment. 
See  Magoun  v.  Illinois  Trust  &  Savings  Bank,  170  U.  S.  283.  Matters 
of  state  procedure  and  the  correctness  of  the  New  York  decree  or  judg- 
ment, apart  from  specific  constitutional  objections,  are  not  open  here. 
As  we  have  said,  the  question  whether  the  property  was  to  be  regarded 
as  in  transitu,  if  material,  must  be  regarded  as  found  against  the  plain- 
tiff in  error. 

Decree  affirmed. 

Mr.  Justice  White  dissents. 


SECT.   II.]  BUCK    V.    BEACH.  87 

BUCK  V.  BEACH. 
Supreme  Court  of  the  United  States.     1907. 

[Reported  20G  U.  S.  392.] 

Judgment  against  the  plaintiff  in  error  (who  was  defendant 
below)  was  recovered  in  a  State  Circuit  Court  in  Indiana,  which 
was  affirmed  by  the  Supreme  Court  of  the  State  (164  Indiana,  37), 
and  the  plaintiff  in  error  brings  the  case  here  to  review  that  judg- 
ment. The  predecessor  of  the  defendant  in  error,  being  at  the  time 
treasurer  of  Tippecanoe  County,  in  tlie  State  of  Indiana,  brougbt 
this  action  in  1897  against  the  plaintilf  in  error  to  subject  funds  in 
his  hands  to  the  payment  of  taxes  alleged  to  be  due  from  the  estate 
of  one  Job  M.  Nash,  deceased,  which  taxes  had  been  assessed  in 
above  county  and  State  in  1894,  after  the  death  of  Nash,  on  personal 
property  of  the  deceased  that  had  been  omitted  from  the  tax  list  in 
his  lifetime,  during  the  years  1881  to  1893,  both  inclusive. 

The  point  in  dispute  between  the  parties  relates  to  the  assessment 
for  omitted  property  on  what  are  called  the  "  Ohio  notes,"  the  plain- 
tiff in  error  insisting  that  such  assessment  was  illegal  as  beyond 
the  jurisdiction  of  the  State  to  impose. 

The  material  facts  are  not  really  in  dispute.  It  appears  that 
Nash  died  in  1893,  at  that  time,  and  for  more  than  twenty  years 
prior  thereto,  a  resident  of  the  city  and  State  of  New  York.  He 
left  a  will  which  was  admitted  to  probate  in  Hamilton  County, 
Ohio,  and  his  executors  qualified  tliere.  They  thereafter  refused 
to  pay  the  tax  imposed  upon  the  Ohio  notes  in  Indiana.  By  the 
terms  of  the  will  a  trust  was  created,  and  part  of  tlie  personal  prop- 
erty constituting  such  trust  (more  than  enough  to  pay  the  taxes 
in  dispute)  was  turned  over  to  James  Buck,  plaintiff  in  error  and 
one  of  the  two  trustees  named  in  the  will.  He  resided  in  Lafayette, 
in  the  State  of  Indiana,  and  the  other  trustee  resided  in  Cincinnati, 
in  the  State  of  Ohio.  From  this  fund,  in  the  hands  of  Buck,  the 
defendant  in  error  asked  to  have  the  taxes  paid  which  had  been 
assessed,  as  above  stated,  and  which  he  claimed  were  due  the  State. 
This  was  refused,  and  this  action  was  thereupon  commenced. 

A  former  action  had  been  brought  by  the  trustees  for  relief  by 
injunction  against  the  predecessor  of  the  defendant  in  error  to  en- 
join him  from  seizing  upon  or  interfering  with  the  trust  fund  for 
the  payment  of  the  taxes  in  dispute,  and  in  that  action  the  trustees 
had  been  unsuccessful.  Buck  v.  Miller,  147  Indiana,  58G,  decided 
in  1896. 

The  amount  assessed  on  the  estate  of  decedent  upon  the  "  Ohio 
notes"  from  1884  to  1893,  on  account  of  omitted  assessments  dur- 
ing those  years,  aside  from  the  penalties  for  nonpayment,  was 
$36,357.71. 

During  the  above-mentioned  years,  while  the  decedent  was,  as 
stated,  a  resident  of  the  State  of  Now  York,  he  had  a  large  sum  of 
money  invested  in  the  States  of  Ohio  and  Indiana,  approximating 


88  BUCK    V.    BEACH.  [cHAP.    II. 

$750,000.  The  money  loaned  by  him  in  Ohio  was  evidenced  by 
Ohio  notes,  made  by  the  borrowers,  who  were  residents  of  Ohio,  the 
payment  of  the  money  borrowed  being  secured  by  mortgages  on 
lands  situated  in  Ohio.  The  moneys  loaned  im  Ohio  were  loaned 
through  an  agent  of  Mr.  Nash,  residing  in  Cincinnati.  The  notes 
were  dated  and  j)ayable  in  Cincinnaii,  to  the  order  of  Mr.  Nash,  but 
were  not  endorsed  by  him,  and  all  renewals  and  payments  on  ac- 
count of  them  were  made  to  his  agent  in  Cincinnati.  All  moneys 
paid  upon  or  by  reason  of  these  notes  were  deposited  in  a  bank  in 
Cincinnati  to  the  credit  of  Mr.  Nash,  and  no  part  thereof  was  sent 
to  Indiana.  The  Cincinnati  agent  commenced  loaning  decedent's 
money  about  1860,  and,  upon  the  removal  of  decedent  to  New  York 
in  1870,  and  until  his  death,  in  1893,  the  agent  made  investments 
on  decedent's  behalf  in  Ohio,  collected  the  principal  and  interest 
upon  his  mortgage  loans  and  had  general  charge  of  his  financial 
interests  in  that  State. 

James  Buck  was  the  agent  of  decedent  at  Lafayette,  in  the  State 
of  Indiana,  for  many  years  preceding  the  death  of  Mr.  Nash.  The 
Ohio  notes  were  sent  to  him  from  Cincinnati  by  the  agent  there, 
during  the  years  in  question,  together  with  the  mortgages  securing 
the  pa}Tnent  of  the  notes,  and  they  were  kept  in  a  safe  at  Lafayette, 
Indiana,  by  Mr.  Buck,  but  no  business  was  transacted  in  regard  to 
them  nor  any  use  made  of  them  in  Indiana,  otherwise  than  that  a 
short  time  before  the  interest  on  or  principal  of  the  notes  became 
due  they  were  sent  to  the  Ohio  agent  to  have  the  interest  payments 
made  to  him  endorsed  upon  them,  or  to  be  delivered  up  if  the 
principal  were  paid. 

Notliing  else  was  done  in  Indiana  in  regard  to  the  notes,  except 
that  a  few  days  prior  to  the  first  day  of  April  in  each  year  (which 
is  the  day  upon  which  assessments  for  taxes  are,  by  law,  made  in  the 
State  of  Indiana)  Mr.  Buck  sent  the  notes  and  mortgages  to  the 
Ohio  agent,  and  a  few  days  subsequent  to  that  day  in  each  year  the 
same  were  returned  by  the  Ohio  agent  to  Mr.  Buck,  who  retained 
them  in  his  possession. 

When  the  Ohio  notes  and  mortgages  were  sent  from  Cincinnati 
to  Mr.  Buck  by  the  Ohio  agent,  Mr.  Buck  made  a  record  of  their 
receipt  in  a  book  kept  by  him  for  that  purpose,  showing  the  dates 
and  amounts  of  the  notes  and  when  due,  and  whenever  payment  or 
renewal  of  said  notes  was  reported  by  the  Ohio  agent  to  the  Indiana 
agent,  he  made  entries  of  the  facts  in  the  register  kept  by  him. 

Mr.  Buck  also  had  possession  of  the  notes  and  mortgages  given 
to  Mr.  Nash  for  moneys  loaned  in  the  State  of  Indiana,  and  such 
moneys  were  invested  and  reinvested  in  that  State  during  these 
years,  and  the  taxes  thereon  were  duly  paid. 

I\Ir.  Buck  transacted  no  business  directly  with  the  makers  of  the 
Ohio  notes  or  mortgages  but,  as  stated,  sent  the  notes  to  the  Ohio 
agent  for  any  business  to  be  done  in  regard  to  them. 

During  Mr.  Buck's  agency  money  was  sometimes  sent  to  him  at 
Lafayette  from  Cincinnati  to  be  invested,  which  money  was  placed 
on  deposit  in  the  bank  in  Indiana  and  loaned  for  Mr.  Nash.     Such 


SECT.   II.]  BUCK    V.    BEACH.  89 

moneys  have  nothing  to  do  with  the  "  Ohio  notes  "  in  issue  in  this 
action. 

During  these  years,  at  least  from  188G,  Mr.  Buck  was  authorized 
by  virtue  of  a' power  of  attorney  from  Mr.  Nash  to  satisfy  when  due 
and  wiien  the  money  was  paid  all  notes  and  mortgages,  but  so  far 
as  the  Ohio  notes  and  mortgages  were  concerned  he  never  assumed 
to  satisfy  any  of  them  or  receive  payment  for  the  same.  Tiiat  was 
all  done  by  the  Ohio  agent  at  Cincinnati. 

Peckiiam,  J.  The  only  question  involved  here  is  in  regard  to 
the  taxability  of  the  Ohio  notes  in  the  State  of  Indiana. 

The  plaintiff  in  error  asserts  that  the  simple  physical  presence 
of  the  Ohio  notes  in  Indiana  payable  to  and  not  endorsed  by  the 
decedent,  did  not  constitute  taxable  property  there,  because  such 
notes  were  given  and  were  payable  and  were  paid  in  Ohio  by  resi- 
dents of  Ohio,  and  to  a  non-resident  of  Indiana,  and  for  loans 
made  in  Ohio,  the  capital  represented  by  such  notes  never  having 
been  used  in  business  in  Indiana,  and  he  insists  that  a  tax  upon  such 
capital  or  upon  the  notes  themselves  as  representing  that  capital 
is  an  illegal  tax,  and  that  to  take  property  in  payment  of  such  an 
illegal  tax  is  to  take  it  without  due  process  of  law  and  constitutes 
a  violation  of  the  Fourteenth  Amendment. 

If  the  facts  in  this  case  constituted  the  debts  evidenced  by  the 
Ohio  notes  property  in  the  Jurisdiction  of  the  State  of  Indiana  at 
the  time  when  such  taxes  were  imposed,  then  the  tax  was  valid, 
if  there  were  statutory  autliority  of  that  State  for  the  same.  The 
State  Court  has  held  that  there  was  such  authority,  Buck  v.  WiWev, 
147  Indiana,  586;  Buck  v.  Beach,  164  Indiana,  37,  being  the  case 
at  bar,  and  that  construction  of  the  statute  concludes  this  court. 
Delaware  &c.  Co.  v.  Pennsylvania,  198  TJ.  S.  341,  352. 

The  sole  question  then  for  this  court  is  whether  the  mere  presence 
of  the  notes  in  Indiana  constituted  the  debts  of  which  tlie  note? 
were  the  written  evidence,  property  within  tlie  jurisdiction  of  that 
State,  so  that  such  debts  could  be  therein  taxed. 

Generally,  property  in  order  to  be  the  subject  of  taxation  must 
be  within  the  jurisdiction  of  the  power  assuming  to  tax.  State 
Tax  on  Foreign-held  Bonds,  15  Wall.  300;  Erie  Eailroad  v.  Penn- 
sylvania, 153  U.  S.  628,  646 ;  Savings  Societv  v.  Multnomah  County, 
169  U.  S.  421,  427;  Louisville  &c.  v.  Kentucky,  188  IT.  S.  385; 
Delaware  &c.  v.  Pennsylvania,  198  U.  S.  431;  Union  Transit  Co. 
V.  Kentucky,  199  U.  S.'l94;  Metropolitan  Ins.  Co.  v.  New  Orleans, 
205  U.  S.  '395. 

In  regard  to  tangible  property  the  old  rule  was  mohilia  seqitunter 
personam,  by  which  personal  property  was  supposed  to  follow  the 
person  of  its  owner,  and  to  be  subject  to  the  law  of  the  owner's 
domicil.  For  the  purpose  of  taxation,  however,  it  has  long  been 
held  that  personal  property  may  be  separated  from  its  owner,  and 
he  may  be  taxed  on  its  account  at  the  place  where  the  property  is, 
although  it  is  not  the  place  of  his  own  domicil,  and  even  if  he  is 
not  a  citizen  or  resident  of  the  State  wdiich  imposes  the  tax.  Pull- 
man Palace  Car  Co.  v.  Pennsylvania,   141   U.  S.   18,  22;  Tappan 


90  BUCK    V.    BEACH.  [cHAP.    II. 

V.  Merchants'  National  Bank,  19  Wall.  490;  People  ex  rel.  Hoyt 
t'.  The  Commissioner  of  Taxes,  23  N.  Y.  224.  The  same  rule  applies 
to  intangible  property.  Generally  speaking,  intangible  property  in 
the  nature  of  a  debt  may  be  regarded,  for  the  purposes  of  taxation, 
as  situated  at  the  domicil  of  the  creditor  and  within  the  jurisdiction 
of  the  State  where  he  has  such  domicil.  It  is  property  within  that 
State.  Thus  it  has  been  held  that  a  debt  owned  by  a  citizen  of  one 
State  against  a  citizen  of  another  State  and  evidenced  by  the  bond 
of  the  debtor,  secured  by  a  deed  of  trust  or  mortgage  upon  real  estate 
situated  in  the  State  where  the  debtor  resides,  is  properly  taxed  by 
the  State  of  the  residence  of  the  creditor,  if  the  statute  of  that  State 
so  provides,  and  such  tax  violates  no  provision  of  the  Federal  Con- 
stitution.    Kirtland  v.  Hotchkiss,  100  U.  S.  491,  498. 

Eejecting  the  fiction  of  law  in  regard  to  the  situs  of  personal 
property,  including  therein  choses  in  action,  the  courts  of  Indiana 
have  asserted  jurisdiction  by  reason  of  the  statute  of  that  State 
over  these  Ohio  notes  for  the  purpose  of  taxation  in  Indiana,  founded 
upon  the  simple  fact  that  such  notes  were  placed  in  the  latter  State 
by  tlie  Ohio  agent  of  the  decedent  under  the  circumstances  above 
set  forth.  The  Supreme  Court  of  Indiana  refused  to  accept  the 
testimony  of  the  agents  that  the  Ohio  notes  were  sent  to  Lafayette 
merely  for  safe  keeping,  and  for  clerical  convenience,  and  said  that 
"  the  court  below  was  authorized  to  make  the  opposite  deduction 
from  the  uniform  course  of  the  business  in  respect  to  the  keeping 
of  said  notes  and  mortgages  and  from  the  evidence  that  decedent 
gave  the  direction  which  established  the  practice  that  was  pursued 
in  that  particular.  More  than  that,  the  evidence  clearly  warranted 
the  conclusion  that  Buck  was  vested  with  a  control  of  said  notes 
and  securities  for  the  purposes  of  enabling  decedent  to  escape  taxa- 
tion in  Ohio.  We  must,  therefore,  conclude,  in  support  of  the  gen- 
eral finding,  that  the  court  below  found  that  in  the  conducting  of 
the  business  of  the  Ohio  agency  the  decedent  separated  from  said 
business  the  possession  of  said  notes  and  mortgages  and  vested  the 
right  to  such  possession  in  said  Buck.  There  was  no  return  for  taxa- 
tion of  said  notes,  or  of  the  investments  represented  by  them,  either 
in  Ohio  or  in  New  York  during  the  lifetime  of  the  decedent." 

Taking  this  to  be  a  finding  of  fact  by  the  Supreme  Court  of  the 
State,  it  is  plain  that  the  action  of  the  decedent  in  sending  the  Ohio 
notes  into  the  State  of  Indiana  for  the  purpose  stated  (whether 
successful  or  not),  was  improper  and  unjustifiable.  The  record 
does  show,  however,  that  the  executors  subsequently  paid  the  Ohio 
autliorities  over  $40,000  for  taxes  on  the  moneys  invested  in  Ohio. 

But  an  attempt  to  escape  proper  taxation  in  Ohio  does  not  confer 
jurisdiction  to  tax  property  asserted  to  be  in  Indiana,  which  really 
lies  outside  and  bevond  the  jurisdiction  of  that  State.  Jurisdiction 
of  the  State  of  Indiana  to  tax  is  not  conferred  or  strengthened  by 
reason  of  the  motive  which  may  have  prompted  the  decedent  to  send 
into  the  State  of  Indiana-  these  evidences  of  debts  owing  him  by 
residents  of  Ohio.  The  question  still  remains,  was  there  any  prop- 
erty within  the  jurisdiction  of  the  State  of  Indiana,  so  as  to  permit 


JSKCT.   II.]  BUCK    V-    BEACH.  91 

that  state  to  tax  it,  simply  because  of  the  presence  of  the  Ohio  notes 
in  that  State?  It  was  not  the  value  of  the  paper  as  a  tang-ibie  thing, 
on  which  these  promises  to  pay  the  debts  existing  in  Oliio  were 
written,  that  was  taxed  by  that  State.  The  property  really  taxed 
was  the  debt  itself,  as  each  separate  note  was  taxed  at  the  full 
amount  of  the  debt  named  therein  or  due  thereon.  And  jurisdiction 
over  these  debts  for  tlie  purpose  of  taxation  was  asserted  and  exer- 
cised solely  by  reason  of  the  physical  presence  in  India^ia  <^f  tlui 
notes  themselves,  although  they  were  written  evidence  of  the  ex- 
istence of  the  debts  wliich  were  in  fact  tliereby  taxed. 

A  distinction  has  been  sometimes  taken  between  bonds  and  otlie:' 
specialty  debts  belonging  to  the  deceased,  on  the  one  hand,  and 
simple  contract  debts  on  the  other,  for  the  purpose  of  probate  juris- 
diction, and  the  probate  court,  where  the  bonds  are  found,  has  been 
held  to  have  jurisdiction  to  grant  probate,  while  in  the  other  class 
of  debts  (including  promissory  notes)  jurisdiction  has  attached  to 
the  probate  Court  where  the  debtor  resided  at  the  death  of  the 
creditor.  1  Williams  on  Executors,  6th  Am.  from  7th  English  ed., 
bottom  paging  288,  290,  note  [h]  ;  ^Yvman  v.  Halstead  Adm'r,  109 
U.  S.  G54.  See  also  Beers  v.  Shannon,  73  N.  Y.  292,  299 ;  Owen 
V.  Miller,  10  Ohio  St.  136. 

Under  such  rule,  the  debts  here  in  question  were  not  property 
within  the  State  of  Indiana,  nor  were  the  promissory  notes  them- 
selves, which  were  only  evidence  of  such  debts.  The  rule  giving 
jurisdiction  where  the  specialty  may  be  found,  has  no  application 
to  a  promissory  note.  Assuming  such  a  rule,  the  case  here  is  not 
covered  by  it. 

There  are  no  cases  in  this  court  where  an  assessment  such  as  the 
one  before  us  has  been  involved.  We  have  not  had  a  case  where 
neither  the  party  assessed  nor  the  debtor  was  a  resident  of  or  present 
in  the  State  where  the  tax  was  imposed,  and  where  no  business  was 
done  therein  by  the  owner  of  the  notes  or  his  agent  relating  in  any 
way  to  the  capital  evidenced  by  the  notes  assessed  for  taxation.  We 
cannot  assent  to  the  doctrine  that  the  mere  presence  of  evidences 
of  debt,  such  as  these  notes,  under  the  circumstances  already  stated, 
amounts  to  the  presence  of  property  within  the  State  for  taxation. 
That  promissory  notes  may  be  the  subject  of  larceny,  as  stated  in 
48  N.  Y.  cited  "below,  does  not  make  the  debts  evidenced  by  them, 
property  liable  to  taxation  within  the  State  where  there  is  no  other 
fact  than  the  presence  of  the  notes  upon  which  to  base  the  claim. 

In  People  v.  The  Board  of  Trustees,  &c.,  48  N.  Y.  390,  it  was 
held  that  money  due  upon  a  contract  for  the  sale  of  land  was  per- 
sonal property,  and  that  where  such  contract  belonging  to  a  non- 
resident was  in  the  hands  of  a  resident  acrent,  it  might,  for  the  pur- 
poses, of  municipal  taxation,  be  assessed  to  the  agent  and  taxed. 
In  the  opinion  Judge  Earl  said:  "The  debts  due  upon  these 
contracts  are  personal  estate,  the  same  as  if  they  were  due  upon  notes 
or  bonds;  and  such  personal  estate  may  be  said  to  exist  where  the 
obligations  for  pavments  are  held."  The  contracts  spoken  of  in  that 
case' were  contracts  for  the  sale  of  land  by  a  non-resident  owner  to 


92  BUCK  V.  BEACH.  [chap.  n. 

persons  within  the  count}'^  where  the  lands  were  situated.  The 
debtors  resided  within  the  State,  and  the  agent  of  the  non-resident 
for  the  sale  of  the  land  resided  in  the  State  and  had  possession  of 
the  contracts.    A  different  case  as  to  its  facts  from  the  one  before  us. 

In  People  v.  Smith,  88  N.  Y.  576,  jurisdiction  to  tax  in  New 
York  was  denied  under  the  statute  of  that  State,  because  the  personal 
estate  was  not  witliin  the  State,  although  the  same  principle,  page 
581  as  contained  in  48  N.  Y.  supra,  was  asserted. 

If  payment  of  these  notes  had  to  be  enforced  it  would  not  be  to 
the  courts  of  Indiana  that  the  owner  would  resort.  He  would  have 
to  go  to  Ohio  to  find  the  debtor  as  well  as  the  lands  mortgaged  as 
security  for  the  payment  of  the  notes.  It  is  true  that  if  the  notes 
were  stolen  while  in  Indiana,  and  they  were  therein  a  subject  of 
larceny,  tlie  Indiana  courts  would  have  to  be  resorted  to  for  the 
punishment  of  the  thieves.  That  would  be  in  vindication  of  the 
general  criminal' justice  of  the  State.  This  consideration,  however, 
is  not  near  enough  to  the  question  involved  to  cause  us  to  change 
our  views  of  the  law  in  regard  to  the  taxation  of  property,  and  make 
that  property  within  the  State,  which  we  think  is  clearly  outside  it. 

Although  public  securities,  consisting  of  state  bonds  and  bonds 
of  municipal  bodies,  and  circulating  notes  of  banking  institutions 
have  sometimes  been  treated  as  property  in  the  place  where  they 
were  found,  though  removed  from  the  domicil  of  the  owner.  State 
Tax  on  Foreign-held  Bonds,  15  Wall.  300,  324,  it  has  not  been  held 
in  this  court  that  simple  contract  debts,  though  evidenced  by  pro- 
missory notes,  can  under  the  facts  herein  stated  be  treated  as  prop- 
erty and  taxed  in  the  State  where  the  notes  may  be  found. 

As  is  said  in  the  above  cited  case  at  page  320 :  "  All  the  property 
there  can  be  in  the  nature  of  things  in  debts  of  corporations,  be- 
longs to  the  creditors,  to  whom  they  are  payable,  and  follows  their 
domicil,  wherever  that  may  be.  Their  debts  can  have  no  locality 
separate  from  the  parties  to  whom  they  are  due.  This  principle 
might  be  stated  in  many  different  ways,  and  supported  by  citations 
from  numerous  adjudications,  but  no  number  of  authorities,  and  no 
forms  of  expressions  could  add  anything  to  its  obvious  truth,  which 
is  recognized  upon  its  simple  statement." 

The  cases  cited  in  Metropolitan  Life  Insurance  Company  v.  The 
City  of  New  Orleans,  205  TJ.  S.  395,  show  that  this  rule  is  enlarged 
to  the  extent  of  holding  that  capital,  evidenced  by  written  instru- 
ments, invested  in  a  State  may  be  taxed  by  the  authorities  of  the 
State,  although  their  owner  is  a  non-resident  and  such  evidences  of 
debt  are  temporarily  outside  of  the  State  when  the  assessment  is 
made.  Although  the  language  of  the  opinion  in  the  case  of  State 
Tax  on  Foreign-held  Bonds,  supra,  has  been  somewhat  restricted 
so  far  as  regards  the  character  of  the  interest  of  the  mortgagee  in 
the  land  mortgaged,  Savings,  &c.  Society  v.  Multnomah  County, 
169  TJ.  S.  421,  428,  the  principle  upon  which  the  case  itself  was 
decided  has  not  been  otherwise  shaken  hy  the  later  cases.  New 
Orleans  v.  Stempel,  175  IT.  S.  309,  319,  320;  Blackstone  v.  Miller, 
188  TJ.  S.  189,  206.     In  the  Stempel  case,  supra,  the  notes,  as  we 


SECT.   II.]  UUCK    r.    liJiAClI.  93 

have  said,  represented  the  capital  of  the  owner  invested  in  the  State, 
and  tlie  capital  was  taxed,  altliough  the  owner  was  a  non-resident. 

Cases  arising  under  collateral  inheritance  tax  or  succession  tax 
acts  have  been  cited  as  ali'ording  foundation  for  the  right  to  tax  as 
herein  asserted.  The  foundation  upon  which  such  acts  rest  is 
different  from  tliat  wliich  exists  where  the  assessment  is  levied  upon 
proper!}'.  The  succession  or  inheritance  tax  is  not  a  tax  on  prop- 
erty, as  has  been  frequently  held  by  this  court,  Knowlton  v.  Moore, 
178  U.  S.  41,  and  Blackstone  v.  Miller,  188  U.  S.  IS'J,  and  therefore 
the  decisions  arising  under  such  inheritance  tax  cases  are  not  in 
point. 

Our  decision  in  this  case  has  no  tendency  to  aid  the  owner  of 
taxable  property  in  any  effort  to  avoid  or  evade  proper  and  legiti- 
mate taxation.  The  presence  of  the  notes  in  Indiana  formed  no 
bar  to  the  right,  if  it  otherwise  existed,  of  taxing  the  debts,  evidenced 
by  the  notes,  in  Ohio.  It  does,  liowever,  tend  to  prevent  the  taxa- 
tion in  one  State  of  property  in  the  shape  of  debts  not  existing  there 
and  which  if  so  taxed  would  make  double  taxation  almost  sure, 
which  is  certainly  not  to  be  desired  and  ought,  wherever  possible,  to 
be  prevented. 

For  the  reason  that  as  the  assessment  in  this  case  was  made  upon 
property  which  was  never  within  the  jurisdiction  of  the  State  of 
Indiana  the  State  had  no  power  to  tax  it,  and  the  enforcement  of 
such  a  tax  would  be  the  taking  of  property  without  due  process  of 
law. 

The  judgment  of  the  Supreme  Court  of  Indiana  is  reversed  and 
the  ease  remanded  for  further  proceedings  not  inconsistent  with  the 
opinion  of  this  court. 

Reversed. 

Brewer  and  Day,  JJ.,  dissenting.^ 


*  "It  has  been  asserted  or  implied,  again  and  again,  that  the  States  had  the 
power  to  deal  with  negotiable  paper  on  tho  footing  of  situs.  It  is  well 
settled  that  bunk  bills  and  municipal  bonds  are  in  such  a  concrete,  tangible 
form  that  they  are  subject  to  taxation  where  found,  irrespective  of  the  dom- 
icil  of  the  owner;  .  .  .  notes  and  mortgages  are  of  the  same  nature.  .  .  we 
see  no  reason  why  a  State  may  not  declare  that  if  found  within  its  limits 
thev  shall  be  subject  to  taxation.  New  Orleans  i\  Stempel,  175  U.  S.  309. 
322,  323.  Bristol  v.  Washington  County,  177  U.  S.  133,  141.  State  Board 
of  Assessors  v.  Comptoir  National  d'Escompte,  1!)I  U.  S.  388,  403,  404. 
Metropolitan  Life  Insurance  Co.  v.  New  Orleans,  205  U.  S.  395,  400,  402. 
This  is  the  established  law  unless  it  has  been  overthrown  by  the  decision  in 
Buck  V.  Beach,  200  U.  S.  392. 

"  No  such  eflcct  should  he  attributed  to  that  case.  The  Ohio  notes  in  Buck's 
hands  that  were  held  not  to  be  taxable  in  Indiana  were  moved  backward  and 
forward  between  Ohio  and  Indiana  with  the  intent  to  avoid  taxation  in 
either  State.  206  U.  S.  402.  They  really  were  in  Ohio  hands  for  business 
purposes,  ihid.,  305,  and  sending  thom  to  Indiana  was  spoken  of  by  "Mr. 
Justice  Peckham  as  improper  and  unjustifiable.  Ibid.  402.  Their  absence 
from  Ohio  evidently  was  regarded  as  a  temporary  absence  from  home. 
Ibid.  404.  And  the  conclu?rion  is  carefully  limited  to  a  refusal  to  hold  the 
presence  of  the  notes  "  under  the  circumstances  already  stated  "  to  amount 
to  the  presence  of  property  within  the  State.     A  distinction  was  taken  be- 


94  TAri'Ai^  V.  merchants'  national  bank.         [chap,  il 


TAPPAN  V.  MEPtCHANTS'  NATIONAL  BANK. 

Supreme  Codht  of  the  United  States.     1873. 

[Reported  19  Wall.  490.] 

Bill  to  enjoin  the  collection  of  taxes  in  Cook  County  on  the 
shares  of  the  Merchants'  Bank.  The  Circuit  Court  of  the  Northern 
District  of  Illinois  granted  the  injunction,  and  Tappan,  the  col- 
lector, appealed,^ 

A\'AiTi;,  C.  J.  We  are  called  upon  in  this  case  to  determine  whether 
the  General  Assembly  of  the  State  of  Illinois  could,  in  1867,  provide 
for  the  taxation  of  the  owners  of  shares  of  the  capital  stock  of  a 
National  bank  in  that  State,  at  the  place,  within  the  State,  where 
the  bank  was  located,  without  regard  to  their  places  of  residence.  The 
statute  of  Illinois,  under  the  authority  of  which  the  taxes  complained 
of  were  assessed,  was  passed  before  the  act  of  Congress,  approved 
February  10th,  1868,  which  gave  a  legislative  construction  to  the 
words,  "  place  where  the  bank  is  located,  and  not  eleswhere,"  as  usee} 
in  cection  forty-one  of  the  National  Banking  Act,  and  permitted 
the  State  to  determine  and  direct  the  manner  and  place  of  taxing 
resident  shareholders,  but  provided  that  non-residents  should  be  taxed 
only  in  the  city  or  town  where  the  bank  was  located. 

The  power  of  taxation  by  any  State  is  limited  to  persons,  property, 
or  business  within  its  jurisdiction.  Per^jonal  propertv,  in  the  ab- 
sence of  any  law  to  the  contrary,  follows  the  person  of  the  owner,  and 
has  its  situs  at  his  domicile.  But,  for  the  purposes  of  taxation,  it 
may  be  separated  from  him,  and  he  mav  be  taxed  on  its  account  at 
the  place  where  it  is  actually  located.  These  are  familiar  principles, 
and  have  been  often  acted  upon  in  this  court  and  in  the  courts 
of  Illinois.  If  the  State  has  actual  jurisdiction  of  the  person  of 
the  owner,  it  operates  directly  upon  him.  If  he  is  absent,  and  it 
has  jurisdiction  of  his  property,  it  operates  upon  him  through  his 
property. 

Shares  of  stock  in  National  banks  are  personal  property.  They 
are  made  so  in  express  terms  by  the  act  of  Congress  under  which 
such  banks  are  organized.  They  are  a  species  of  personal  property 
which  is,  in  one  sense,  intangible  and  incorporeal,  but  the  law  which 
creates  them  may  separate  them  from  the  person  of  their  owner  for 


tween  the  presence  sufficient  for  a  succession  tax  like  that  in  this  case,  and 
that  renuirpfl  for  a  property  tax  such  as  then  was  before  the  court,  and  the 
only  point  decided  was  that  the  notes  had  no  such  presence  in  Indiana  as 
to  warrant  a  propertv  tax.  See  New  York  Central  k  Hudson  River  R.  R. 
Co.  V.  Miller.  202  U.  S.  .584,  .")07.  If  Buck  v.  Beach  is  not  to  be  distinpiiished 
on  one  of  the  forecroinw  {rrounds,  as  some  of  us  think  that  it  can  be,  we  are 
of  opinion  that  it  must  yield  to  the  current  of  authorities  to  which  we  have 
referred."  —  HoTJTKS.  .1.'  in  Wheeler  v.  Sohmer.  2.'?3  U.  S.  4.34.  439. 
*  This  short  statement  is  substituted  for  that  of  the  Reporter. 


SECT.    II. J     BELLOWS    FALLS    I'OWER    CO.    V.    COMMON WEALTJI.        U5 

the  purposes  of  taxation,  ami  give  tliem  a  siliis  of  their  own.  This  has 
been  done.  By  section  forty-one  of  the  National  Banking  Act,  it  is 
in  effect  provided  that  all  shares  in  sucli  banks,  held  by  any  person 
or  body  corporate,  may  be  included  in  the  valuation  of  the  personal 
property  of  such  person  or  corporation  in  the  .assessment  of  taxes 
imposed  under  KState  authority,  at  the  place  where  the  bank  is 
located,  and  not  elsewhere.  This  is  a  law  of  the  property.  Every 
owner  takes  the  property  subject  to  this  power  of  taxation  under 
State  authority,  and  every  non-resident,  by  becoming  an  owner, 
voluntarily  submits  himself  to  the  jurisdiction  of  the  State  in  which 
the  bank  is  established  for  all  the  purposes  of  taxation  on  account  of 
his  ownership.  His  money  invested  in  the  shares  is  withdrawn 
from  taxation  under  the  authority  of  the  State  in  which  he  reside? 
and  submitted  to  the  taxing  power  of  the  State  where,  in  contempla- 
tion of  tlie  law,  Ills  investment  is  located.  The  State,  therefore, 
within  which  a  National  bank  is  situated  has  jurisdiction,  for  the 
purposes  of  taxation,  of  all  the  shareholders  of  the  bank,  both  resident 
and  non-resident,  and  of  all  its  shares,  and  may  legislate  accordingly. 
Decree  reversed  and  the  cause  remanded.  ^ 


BELLOWS  FALLS  POWER  CO.  v.  COMMONWEALTH. 
Supreme  Judicial  Court  of  Massachusetts.     1915. 

[Reported  222  Mass.   51.] 

EuGG,  C.  J.  This  is  a  petition  under  St.  1909,  c.  490,  Part  III, 
§  70,  for  the  recovery  of  the  amount  of  an  excise  alleged  to  have  been 
excessive,  which  was  levied  upon  a  domestic  business  corporation 
under  §§  41  and  43  of  Part  III  of  the  tax  act,  St.  1909,  c.  490,  as 
amended  by  St.  1904,  c.  198,  §  6.  The  questions  presented  are 
whether  certain  stocks  and  bonds  of  Vermont  corporations  are  "  secu- 
rities which  if  owned  by  a  natural  person  resident  in  this  Common- 
wealth," by  §  41  "■'  would  not  be  liable  to  taxation,"  or  by  §  43  "  would 
be  liable  to  taxation,"  and  also  whether  such  stock  is  "property 
situated  in  another  State  or  country  and  subject  to  taxation  therein  " 
by  §  41.  .  .  . 

The  petitioner  owned  a  large  number  of  shares  of  stock  in  a  Ver- 
mont corporation,  the  value  of  which  the  tax  commissioner  refused 
to  deduct  from  the  tnie  market  value  of  the  corporate  franchise  of 
the  petitioner,  for  the  purpose  of  determining  its  excise  tax.  Tt  is 
contended  by  the  petitioner  that  the  tax  commissioner  was  in  error 
for  two  reasons,  (1)  because  the  stock  of  the  Vermont  corporation 
would  not  be  subject  to  taxation  in  this  Commonwealth  if  owned  by 
a  natural  person,  and  (2)  because  such  stock  is  property  situated  in 
another  State  and  subject  to  taxation  therein.  These  two  conten- 
tions rest  on  statutes  of  the  State  of  Vermont.  .   .  . 

'  Arc.  Fstate  V.  Travelers  Ins.  Co.,  70  Conn.  50n.     Soo  Matter  of  Bronson, 
150  N.  Y.  1. 


96       BELLOWS    FALLS   POWER    CO.    V.    COMMONWEALTH.     [CHAP.    II. 

Plainly  these  contentions  would  have  no  merit  in  law  were  it  not 
for  the  special  provisions  of  the  Vermont  statute.  It  was  early  de- 
cided in  this  Commonwealth  that  shares  of  stock  in  a. foreign  corpora- 
tion were  taxable  as  property  to  the  owner  resident  here,  although 
the  place  of  business  and  the  entire  property  of  the  corporation 
were  in  another  jurisdiction.  Great  Barriugton  v.  County  Commis- 
sioners, 16  Pick.  572.  This  principle  of  taxation  has  been  repeatedly 
upheld,  the  latest  instance  being  Hawley  v.  Maiden,  204  Mass.  138. 
That  decision  was  affirmed  in  232  U.  S.  1,  where,  at  pages  12  and 
13,  it  was  said  by  Mr.  Justice  Hughes  in 'delivering  the  opinion: 
'■'  Whether,  in  the  case  of  corporations  organized  under  State  laws, 
a  provision  by  the  State  of  incorporation  fixing  the  situs  of  shares 
for  the  purpose  of  taxation,  by  whomever  owned,  would  exclude  the 
taxation  of  the  shares  by  other  States  in  which  their  owners  reside 
is  a  question  which  does  not  arise  upon  this  record  and  need  not  be 
decided."  "\Ye  are  not  aware  that  this  question  ever  has  been 
determined  by  this  court  or  by  the  Supreme  Court  of  the  United 
States.  It  now  is  presented.  It  must  be  taken  as  the  settled  purpose 
of  our  tax  law  to  assess  to  the  owners  resident  in  this  Commonwealth 
a  tax  upon  all  shares  of  foreign  corporations.  It  is  provided  in  the 
tax  act  (St.  1909,  c.  490)  in  Part  I,  §  2,  that  "All  property  real  and 
personal  situated  within  the  Commonwealth,  and  all  personal  prop- 
erty of  the  inhabitants  of  the  Commonwealth  wherever  situated, 
unless  expressly  exempted  by  law,  shall  he  subject  to  taxation." 
Part  I,  §  23,  provides  that  "All  personal  estate,  within  or  with- 
out the  Commonwealth,  shall  be  assessed  to  the  owner  in  the  city  or 
town  in  which  he  is  an  inhabitant  on  the  first  day"  of  April,  with 
exceptions  not  here  material,  save  that  by  St.  1909^  c.  516,  §  1, 
"  Merchandise,  machinery  and  animals  owned  by  inhabitants  of  this 
Commonwealth,  but  situated  in  another  State  shall  be  exempt  from 
taxation."  Part  I.  §  4,  provides  that  "  Personal  estate  for  the  pur- 
pose of  taxation  shall  include  .  .  .  Third,  Public  stocks  and  securi- 
ties, .  .  .  bonds  of  railroads  and  street  railways,  stocks  in  turnpikes, 
bridges  and  moneyed  corporations  within  or  without  this  Common- 
wealth .  .  ."  with  exceptions  not  now  of  consequence.  In  sub- 
stance, the  only  question  is  whether  these  provisions  of  the  law,  which 
plainly  include  in  their  scope  stock  such  as  is  owned  by  this  petitioner 
in  the  Vermont  corporation,  conflict  as  applied  to  such  shares  with 
any  provision  of  the  State  or  federal  constitution. 

Vermont  has  the  power  to  tax  all  the  shares  of  corporations  or- 
ganized under  its  laws,  whethor  owned  by  its  residents  or  by  those 
of  other  States  or  countries.  This  expressly  was  decided  in  Corry 
V.  Mayor  &  City  Council  of  Baltimore,  196  U.  S.  466,  and  m  St. 
Albans  v.  National  Car  Co.  57  Vt.  68.  The  nrinciple  was  applied 
in  Tapnan  v.  Merchar^ts'  National  Bank,  19  Wall.  490.  It  was  rec- 
0£mi7Pd  in  Creve.  v.  Shaw,  173  Mass.  205,  208,  Kingsbu^j;.  Chapm, 
196  Mass.  533,  535,  and  Kennedv  v.  Hodees.  215  Mass  112,  114. 

It  may  be  ur^ed  on  the  onp  side  that  the  nature  and  the  incidents 
of  the  sharp,  of  ctock  are  fixed  by  the  law  by  which  the  corporation  is 
created-  that  the  provisions  of  that  law  are  limitations  upon  the 


SECT.    II.]     BliLl^OWS    lALLS    TOWEB    CO.    V.    COMMONWEALTH.        97 

essential  eliaracteristics  of  shares  and  follow  them  wherever  they 
may  go;  and  that  if  the  situs  of  the  shares  for  purpose  of  taxation 
is  declared  by  that  law  to  be  in  the  State  of  its  domicil,  that  is  an 
inherent  restriction  which  everywhere  must  be  recognized  as  an  inci- 
dent of  the  property  represented  by  tlie  shares;  that  tiiis  provision  as  to 
situs  for  tax  purposes  is  contractual  in  substance  and  may  be  invoked 
by  the  owner  in  exoneration  of  liability  as  much  as  otliers  which  are 
obligatory  are  resorted  to  by  creditors  to  establish  a  liability,  Con- 
verse V.  Ayer,  197  Mass.  443,  453,  Whitman  v.  Oxford  National 
Bank,  176  U.  S.  559;  that  by  virtue  of  the  Vermont  statute  this 
stock  is  divested  of  its  taxable  character  as  intangible  property  and 
clothed  with  an  immovable  garment  of  tangibility  located  in  Vermont 
alone,  and  hence,  that  these  shares  stand  on  the  same  footing  as  mer- 
chandise and  other  tactile  personal  elTects  which  cannot  be  taxed  to 
their  owner  in  a  jurisdiction  other  than  that  in  which  they  perma- 
nently are  placed.  Delaware,  Lackawanna  &  Western  Kailroad  v. 
Pennsylvania,  198  U.  S.  341.  Old  Dominion  Steamship  Co.  v.  Vir- 
ginia, 198  U.  S.  299.  Expressions  by  eminent  judges  are  laid  hold 
of  as  countenancing  the  soundness  of  these  contentions.  It  was  said 
by  Chief  Justice  Waite  in  Tappan  v.  Merchants'  National  Bank,  19 
Wall.  490,  at  page  499,  "shares  of  stock  in  national  banks  are  per- 
sonal property.  .  .  .  They  are  a  species  of  personal  property  which  is, 
in  one  sense,  intangible  and  incorporeal,  but  the  law  which  creates  them 
may  separate  them  from  the  person  of  their  owner  for  the  purposes 
of  taxation,  and  give  tliem  a  situs  of  their  own.  This  has  been  done. 
[Here  is  quoted  the  section  of  the  national  banking  act  to  that  effect.] 
This  is  a  law  of  the  property.  Every  owner  takes  the  property  sub- 
ject to  this  power  of  taxation  under  State  authority,  and  every  non- 
resident, by  becoming  an  owner,  voluntarily  submits  himself  to  the 
jurisdiction  of  the  State  in  which  the  bank  is  established  for  all  the 
purposes  of  taxation  on  account  of  his  ownership."  In  Covington  v. 
First  National  Bank  of  Covington,  198  U.  S.  100,  at  page  111,  it 
was  said  by  Mr.  Justice  Day,  "The  situs  of  shares  of  foreign-held 
stock  in  an  incorporated  company,  in  the  absence  of  legislation  im- 
posing a  duty  upon  the  company  to  return  the  stock  within  the  State 
as  the  agent  of  the  owner,  is  at  the  domicil  of  the  owner."  It  is  to 
be  noted,  however,  that  both  these  cases  relate  to  shares  in  national 
banks.  The  subject  of  national  banking  is  within  the  exclusive  con- 
trol of  Congress  and  its  mnndate  respecting  any  subject  witliin  ih 
sphere  is  supreme  and  binding  upon  all  the  States.  The  national 
bank  act  is  explicit  as  to  the  situs  of  shares  of  stock  in  national  banks 
for  taxation.  These  expressions,  therefore,  were  directed  to  a  dif- 
ferent subject  and  are  of  slight  value  in  considering  the  present  que,s- 
tion,  which  expressly  was  left  open  in  Hawley  v.  Maiden,  232  IT.  S. 
1,  13.    See  Crethor  r.  Writrht,  23  C.  C.  A.  498,  512. 

Weighty  as  are.  the  sugsrestions  which  have  been  noted  above,  we 
are  of  opinion  that  the  constitutionality  of  the  statute  reouiring  the 
ta-xation  of  shares  like  these  in  question  must  be  sustained.  The 
fudamental  ground  is  that  the  power  to  tax  all  property  within  its 
jurisdiction  is  a  necessary  attribute  of  sovereignty,  and  that  there 


98       BELLOWS   FALLS   POWER   CO.    V.    COMMONWEALTH.     [CHAP.    II. 

is  a  certain  quality  of  property  in  these  shares  attaching  to  the  person 
of  the  owner  and  hence  taxable  at  his  domicil. 

It  is  too  well  settled  to  require  the  citation  of  authorities  that 
the  several  States  of  the  Union  are  foreign  to  each  other  except  so 
far  as  the  United  States  is  paramount  as  the  dominating  gov- 
ernment, and  except  so  far  as  they  are  bound  to  recognize  the  frater- 
nity among  sovereignties  established  by  the  Constitution  of  the  United 
States.  No  State  taxation  laws  cau  have  extraterritorial  elt'ect.  Each 
State,  so  far  as  relates  to  the  power  of  taxation,  is  an  independent 
sovereignty.  It  is  not  concerned  with  what  other  States  may  do  as 
to  property  within  its  jurisdiction,  which  may  be  made  the  subject 
of  taxation  by  itself.  l)wight  v.  Boston,  12  Allen,  316.  Sturges  v. 
Carter,  114  U.  S.  511.  Seward  v.  Kising  Sun,  79  Ind.  351.  Bacor^ 
V.  State  Tax  Commissioners,  126  Mich.  22.  Judy  v.  Beckwith,  137 
Iowa,  24.  McKeen  v.  County  of  Northampton,  49  Perm.  St.  519. 
State  V.  Branin,  3  Zabr.  484,  496.  Bradley  v.  Bauder,  36  Ohio  St. 
28.  Ogden  t'.  St.  Joseph,  90  Mo.  522,  529.  Commonwealth  v.  Lovell, 
125  Ky.  491.  Stanford  v.  San  Francisco,  131  Cal.  34.  All  property 
within  the  jurisdiction  of  a  State,  which  is  capable  of  being  taxed, 
may  be  made  subject  to  taxation  unless  exempted  under  federal  or 
State  law.  'No  State  can  assess  to  the  residents  a  tax  upon  their  real 
estate  or  tangible  personal  property  situated  in  a  foreign  jurisdiction. 
Union  Refrigerator  Transit  Co.  v.  Kentucky,  199  U.  S.  194.  Neither 
can  any  State  give  extraterritorial  effect  to  its  laws  exempting  prop- 
erty of  its  subjects  from  taxation  in  other  jurisdictions.  But,  except 
as  restrained  by  federal  or  State  constitutional  provisions,  "  the  power 
of  the  State  as  to  the  mode,  form,  and  extent  of  taxation  is  unlimited, 
where  the  subjects  to  which  it  applies  are  wdthin  her  jurisdiction." 
Kirtland  v.  Hotchkiss,  100  U.  S.  491,  497. 

There  is  a  necessary  element  of  property  in  shares  in  corporations 
which,  although  intangible,  attaches  to  and  follows  the  person  of  the 
owner,  and  is  inseparable  from  it.  Such  shares  are  personal  property 
and  not  real  estate.  They  are  subject  to  succession  according  to  the 
law  of  the  domicil  of  the  owner.  As  was  said  in  Hawley  v.  Maiden, 
232  U.  S.  1,  at  page  9,  "  It  is  well  settled  that  the  property  of  the 
shareholders  in  their  respective  shares  is  distinct  from  the  corporate 
property,  franchises  and  capital  stock,"  and  further  at  page  12,  that 
shares  of  stock  are  "  in  the  nature  of  contract  rights  or  choses  in  ac- 
tion. Morawetz  on  Corporations,  §  2?5."  It  was  held  in  Stanwood 
V.  Stanwood,  17  Mass.  57,  in  an  opinion  written  by  Chief  Justice 
Parker,  that  shares  of  stock  in  a  bank  were  choses  in  action.  The 
principle  of  that  decision  applies  to  shares  of  stock  in  all  corpora- 
tions. It  is  an  incident  of  such  shares  that  the  owner  is  entitled  to 
participate  in  the  net  profits  earned,  to  enforce  the  use  of  its  capital 
for  its  corporate  purposes,  to  restrain  abuses  of  corporate  powers, 
and  to  receive  his  proportion  of  the  property  of  the  corporation  re- 
maining after  the  payment  of  its  debts  upon  its  rlissohition.  Van 
Allen  V.  The  Assessors,  3  "Wall.  573,  584.  Fnrn'n2"ton  v.  Tennopsee, 
95  U.  S.  679,  687.  In  most  corporations  he  linfl  the  further  ri!rht  in 
proportion  to  his  ownership  to  participate  in  the  election  of  officers 


SECT.    II.]     BELLOWS    1-ALLS    POWER    CO.    V.    COMMONWEALTH.        99 

and  such  direction  of  the  corporate  affairs  as  may  be  vested  in  stock- 
holders. Certificates  of  stock  may  be  the  subject  of  contracts  for 
sale  or  exchange  iiiuler  our  laws.  Opinion  of  tlie  Justices,  lUG  Mass. 
603,  619,  621.  Uur  laws  may  be  invoked  Lo  enforce  such  contracts 
and  other  property  rights,  Herbert  v.  Sinison,  'ZZO  Mass.  4ti0,  as  well 
as  to  protect  the  owner  and  his  property  interest  therein  against  theft 
or  fraud.  His  property  right  as  such  owner  may  be  attached  and 
secured  by  his  creditors  by  resort  to  our  courts,  and  in  many  instances 
doubtless  this  is  the  only  way  of  reaching  such  right  in  any  juris- 
diction. This  property  right  follows  the  person  of  the  owner,  has  its 
situs  at  his  domicil  and  is  there  taxable  regardless  of  any  law  of  a 
sister  State  by  whose  authority  the  corporation  itself  may  have  been 
created. 

Certificates  of  stock  in  a  corporation  have  other  of  the  charac- 
teristics of  property.  They  may  be  converted  like  corporeal  personal 
property.  Jarvis  v.  Rogers,  15  Mass.  389.  Hagar  v.  Norton,  188 
Mass.  47,  50.  McAllister  v.  Kulm,  96  U.  S.  87.  They  are  the  sub- 
ject of  larceny  and  embezzlement.  O'llerron  v.  Gray,  168  Mass.  573, 
575.  They  may  be  hypothecated,  pledged  and  replevied.  Kennedy 
V.  Hodges,  215  Mass.  112,  115.  They  may  be  made  by  statute  subject 
to  attachment  and  garnishment.  Puget  Sound  National  Bank  of 
Everett  v.  Mather,  60  Minn.  363.  Title  pasfses  by  their  delivery  and 
assignment  or  endorsement.  Sargent  v.  Essex  Marine  Railway,  9 
Pick.  201.  Sargent  v.  Franklin  Ins.  Co.  8  Pick.  90,  95.  Boston 
Music  Plall  Association  v.  Cory,  129  Mass.  435.  Certificates  of  stock 
are  not  in  every  respect  the  equivalent  of  the  shares  in  the  corporation 
which  they  represent.  Often  they  are  spoken  of  as  evidence  of  title, 
Kennedy  v.  Hodges,  tibi  supra,  Richardson  v.  Shaw,  209  U.  S.  365, 
378 ;  but  they  may  be  regarded  as  something  more.  Indeed,  it  was 
said  in  Hatch  v.  Reardon,  204  U.  S.  152,  161,  respecting  a  certificate 
of  stock,  "  That  document  was  more  than  evidence,  it  was  a  constit- 
uent of  title.  No  doubt,  in  a  more  remote  sense,  the  object  Avas  the 
membership  or  share  which  the  certificate  conferred  or  made  attain- 
able. More  remotely  still  it  was  an  interest  in  the  property  of  the 
corporation,  which  might  be  in  other  States  than  either  the  corpora- 
tion or  the  certificate  of  stock."  In  Merritt  v.  American  Steel-Barge 
Co.  24  C.  C.  A.  530,  at  page  537,  is  found  this  language :  "  Speaking 
technically,  it  is  true  that  a  stock  certificate  is  written  evidence  of  a 
certain  interest  in  corporate  property.  .  .  .  But  in  the  business  world 
such  obligations  or  securities  are  treated  as  something  more  than  vaovp 
muniments  of  title.  They  are  daily  bought  and  sold  like  ordin:iry 
chattels,  .  .  .  they  have  an  inherent  market  value,  and,  while  difPer- 
ing  in  some  respects  from  chattels,  they  are  generally  classified  n*? 
personal  propertv."  Said  Cooley,  C.  J.,  in  Daggett  v.  Davi?.  f^^ 
Mich.  35,  respecting  the  characteristics  of  stock  in  a  corporation, 
"the  certificnte  itself  is  also  nrnnerty;  stnnrling  as  it  does  as  tho 
representative  of  the  shares."  In  Simpson  r.  Jersey  Cifv  Contractin? 
Co.  165  N.  Y.  193,  197,  198,  occur  these  words:  "Certificates  of 
stock  are  treated  hv  business  men  as  property-  for  all  practical  pur- 
poses.   They  are  sold  in  the  market  and  they  are  transferred  as  collat- 


100       BELLOWS  FALLS  POWEE  CO.    V.   COMMONWEALTH.     [CHAP.   II. 

eral  security  for  loans,  and  they  are  used  in  various  ways  as  property. 
They  pass  by  delivery  from  hand  to  hand."  In  Cook  on  Corporations, 
(Tth  ed.)  §  -±85,  it  is  said, ''  certilicates  of  stock  have  gradually  grown 
to  be  more  than  mere  receipts  or  evidence  of  stock,  and  have  come  to 
be  the  stock  itself,  practically,  in  business  transactions  .  .  .  and, 
like  a  promissory  note,  a  certiiicate  of  stock  is  property  in  itself." 
While  some  of  these  expressions  go  rather  far,  enough  has  been  said 
to  show  a  generally  prevailing  tendency  to  treat  a  certificate  of  stock 
as  possessing  incidents  of  property.  These  are  a  sufficient  basis  for 
taxation  to  the  owner  at  his  residence.  The  validity  of  a  commercial 
usage  wliereby  possession  of  a  certiiicate  of  stock  duly  indorsed  en- 
ables the  holder  to  pass  title  good  against  the  world  has  been  recog- 
nized in  numerous  cases.  Eussell  v.  American  Bell  Telephone  Co. 
180  Mass.  467.  Andrews  v.  Worcester,  Nashua  &  Eochester  Railroad, 
159  Mass.  64,  66.  Scollan?  v.  Eollins,  173  Mass.  275;  S.  C.  179 
Mass.  346.  Clews  v.  Friedman,  182  Mass.  555.  Baker  v.  Davie,  211 
Mass.  429,  438. 

If  the  domiciliary  State  of  the  corporation  has  the  right  to  estab- 
lish the  situs  of  its  shares  of  stock  for  purposes  of  taxation,  on  prin- 
ciple it  would  seem  that  that  power  may  be  exercised  to  declare  an 
entire  exemption  from  taxation  and  to  collect  revenue  in  some  other 
way  from  the  corporation.  If  the  power  exists  in  the  State  creating 
the  corporation  to  establish  the  situs  of  its  shares  of  stock  for  the 
purpose  of  taxation,  and  is  exercised,  it  must  be  absolute  and  no  other 
State  can  inquire  into  the  character  or  extent  of  that  taxation  in  an 
effort  to  tax  its  own  citizen  who  is  a  stockliolder  in  such  corporation. 
It  hardly  seems  possible  that  the  Fourteenth  Amendment  to  the 
federal  constitution  can  have  such  an  effect. 

The  theory  of  taxation  is  that  it  is  money  exacted  from  the  subject 
in  return  for  the  protection  afforded  by  established  government.  It  is 
the  duty  of  governments  to  protect  persons  and  property.  These  rights 
of  the  Massachusetts  owner  of  shares  of  stock  in  the  Vermont  corpora- 
tion pertain  to  his  residence  here  and  receive  the  protection  of  our 
laws.  To  that  extent  the  shareholder  resident  here  receives  for  the 
taxation  imposed  a  return  in  governmental  protection  for  the  prop- 
erty rights  incident  to  his  ownership. 

These  are  incidents  of  property  which  necessarily  follow  the  person 
of  the  owner  of  shares  in  foreign  corporations,  even  though  the  shares 
may  be  taxed  at  the  foreign  domicil  of  the  corporation.  For  these  pur- 
poses the  sifm  of  corporate  shares  follows  the  domicil  of  the  owner. 
This  is  the  general  rule.  There  appears  to  us  to  be  no  ground  for  the 
pcfnblishment  of  an  exception  to  that  general  rule  in  the  instant  case. 
Bristol  V.  Washinjrton  County,  177  TJ.  S.  133.  Ayer  &  Lord  Tie  Co. 
V.  Kentucky,  202  U.  S.  409.  Southern  Pacific  Co.  v.  Kentucky,  222 
TT.  S.  63.  69.  Darnell  v.  Indiana.  226  IT.  S.  390,  Frothingham  v. 
Shaw,  175  Mass.  59.  Welch  v.  Boston.  221  Mass.  155.  On  this 
oTonnrl.  if  not  on  others  also,  Sellicrer  v.  Kentucky,  213  TJ.  S.  200,  is 
distinfrnishable. 

The  case  at  bar  closely  resembles  Bonaparte  v.  Tax  Court,  104 
U.  S.  592,  where  municipal  and  State  bonds,  some  entirely  exempted 


SECT.   II.]     BELLOWS   KALLS   I'OWKi:   CO.    I).    COMMONWEALTH.        101 

from  taxation  and  otliers  subject  to  taxation  in  tlie  State  of  issue  by 
the  State  laws  under  which  they  were  authorized,  nevertheless  were 
held  to  be  taxable  at  tiie  domicil  of  the  owner.  In  principle  that  case 
seems  indistinguishable  from  the  case  at  bar.  An  express  legislative 
declaration  by  the  debtor  State  that  its  bonds  either  shall  be  exempt 
from  taxation  or  shall  be  subject  to  taxation  in  its  own  jurisdiction, 
although  not  categorically  an  attempt  to  separate  the  situs  of  the 
debt  from  the  person  of  the  owner,  yet  is  in  substance  the  equivalent 
of  a  declaration  to  that  end.  It  is  a  legislative  elEort  to  incorporate 
into  the  property  as  one  of  its  essential  qualities  an  exemption  from 
taxation  or  a  liability  to  taxation  in  the  State  of  issue  alone.  It  is 
hard  to  conceive  of  a  purpose  on  the  part  of  that  State  not  to  attach 
by  strong  inference  and  fair  implication  a  separation  of  situs  for  taxa- 
tion from  the  domicil  of  the  owner  to  bonds  so  issued,  if  the  effective 
exercise  of  sucli  a  function  were  within  the  scope  of  legislative  power. 
Indeed,  the  Vermont  statute  is  not  a  precise  assertion  of  sejjaration  of 
situs  of  shares  from  the  person  of  the  non-resident  owner.  It  is  a 
simple  exercise  of  the  power  of  the  sovereign  to  tax.  That  was  the 
effect  of  one  of  the  statutes  under  consideration  in  Bonaparte  v.  Tax 
Court,  104  U.  S.  592.  The  barrier  against  accomplishing  that  pur- 
pose in  such  way  as  to  compel  recognition  by  the  taxing  power  of  a 
sister  State  was  no  greater  in  substance  in  that  case  than  it  is  in  the 
present  case. 

It  has  been  held  that  the  State  having  jurisdiction  over  the  debtor 
has  the  constitutional  power  to  assert  and  maintain  for  itself  a  situs  of 
the  debt  for  purposes  of  taxation  and  levy  a  tax  thereon  against  the 
creditor  domiciled  in  another  State.  This  was  decided  as  to  debts 
secured  by  mortgage  upon  real  estate  in  Savings  &  Tjoon  Society  r*. 
Multnomah  County,  169  U.  S.  481.  It  was  decided  as  to  unsecured 
credits,  whether  expressed  by  notes  or  existing  as  bahl  accounts  cur- 
rent, in  Liverpool  &  London  &  Globe  Ins.  Co.  v.  Assessors  for  the 
Parish  of  Orleans,  221  IJ.  S.  346.  Bonaparte  v.  Tax  Court  uphold 
the  power  of  the  State  having  jurisdiction  of  the  creditor  ownincr 
the  debt  to  tax  him  at  his  domicil  upon  the  maxim  mohilia  sequunfur 
personam,  despite  the  express  tax  or  exemption  from  taxation  bv  the 
State  having  jurisdiction  where  the  debt  was  created  and  the  debtor 
domiciled,  while  the  Multnomah  County  and  Orleans  cases  sustained 
an  exercise  of  the  power  to  tax  by  the  State  having  jurisdiction  of  the 
debtor  regardless  of  what  might  happen  in  the  State  having  jurisdic- 
tion of  the  creditor.  The  more  comprehensive  power  of  Cnmrres? 
as  to  taxation  and  exemption  from  taxation  of  subjects  within  its 
jurisdiction  as  compared  with  that  of  a  State  legislature  is  pointed 
out  by  Taft,  J.,  in  an  opinion  concurred  in  bv  Lurton,  J.,  in  Crether 
V.  Wright,  23  C.  C.  A.  498,  512. 

It  is  manifest  from  the  adjudications  by  the  Fnited  States  Su- 
preme Court  mentioned  above  that  under  some  circumstance"  the 
same  property  may  be  taxed  to  the  same  person  in  different  iurisdic- 
tions  without  violating  anv  riirht  secured  bv  the  federal  constitution. 
Put  in  other  words,  these  decisions  appear  to  mean  that  property  may 
have  a  situs  in  two  different  jurisdictions  for  taxation  purposes  when 


102       BELLOWS  FALLS  POWER  CO.  V.   COMMONWEALTH.     [CIIAP.   II. 

the  nature  of  the  property  seems  to  require  or  permit  it.  There  may 
be  a  dilference  between  bonds  and  shares  of  stock  as  to  capacity  for 
independent  situs.  Blackstone  v.  Miller,  188  U.  S.  189,  206.  Selliger 
V.  Kentucky,  213  U.  S.  200,  201.  But  there  appears  to  be  no  ground 
for  distinction  between  shares  of  stock  and  accounts  current  so  far 
as  concerns  the  issues  here  involved.  Tliis  principle  governs  the  case 
at  bar.  It  shows  that  Corry  v.  Mayor  &  City  Council  of  Baltimore, 
11*6  U.  S.  466,  is  not  inconsistent  with  this  result,  but  that  it  bears 
the  same  relation  to  the  present  case  as  does  Liverpool  &  London  & 
Globe  Ins.  Co.  v.  Assessors  for  the  Parish  of  Orleans  to  Bonaparte  v. 
Tax  Court.  As  was  said  in  Kidd  v.  Alabama,  188  U.  S.  730,  at  page 
732,  by  Mr.  Justice  Holmes,  as  to  taxation  between  sister  States,  "  it 
would  be  a  great  advantage  to  the  country  and  to  tlie  individual  States 
if  principles  of  taxation  could  be  agreed  upon  which  did  not  conflict 
witli  each  other,  and  a  common  scheme  could  be  adopted  by  which 
taxation  of  substantially  the  same  property  in  two  Jurisdictions  could 
be  avoided.  But  the  Constitution  of  the  United  States  does  not  go 
so  far." 

There  is  an  analogy  so  far  as  concerns  situs  between  the  case  at 
bar  and  the  numerous  cases  holding  that  residence  of  the  owner  is 
sufficient  ground  for  the  imposition  of  a  succession  or  inheritance  tax 
upon  various  kinds  of  intangible  property.  Frothingham  v.  Shaw, 
175  Mass.  59.  Buck  v.  Beach,  206  U.  S.  392.  Wheeler  v.  New  York, 
233  U.  S.  434. 

The  principle  against  double  taxation  of  the  same  property  has  no 
application,  because  that  is  confined  in  operation  to  such  taxation 
in  the  same  jurisdiction. 

Whether  it  would  be  wise  to  make  exemptions  in  cases  like  the 
present  is  not  a  judicial  but  a  legislative  question.  Knight  v.  Boston, 
159  Mass.  551. 

It  follows  from  what  has  been  said  that  the  shares  of  stock  are  not 
"  property  situated  in  another  State  and  subject  to  taxation  therein." 
The  context  in  which  these  words  occur  in  our  tax  law  and  its  other 
general  provisions  demonstrate  that  these  -words  refer  to  the  kind  of 
property  which,  if  owned  by  an  individual  and  situated  and  taxed  in 
another  State,  would  be  exempt  from  taxation  here,  such  as  real 
estate,  and  "  merchandise,  machinery  and  animals."  St.  1909,  c.  516, 
§  1.  Union  Eefrigerator  Transit  Co.  v.  Kentucky,  199  U.  S.  194. 
There  are  substantial,  although  intangible,  elements  of  property  in 
shares  of  stock  in  a  corporation  which  attach  to  the  owner  resident  in 
this  Commonwealth. 

The  general  statement  in  the  decisions  of  manv  courts  and  of  text 
writers  is  to  the  effect  that  shares  of  stock  in  foreign  corporations 
mav  be  aspe=sed  to  the  owner  at  the  place  of  his  domicil  irrespective 
of  taxes  which  may  have  been  imposed  on  the  corporation  itself,  even 
in  respect  of  its  capital  stock.  Greenleaf  v.  Board  of  "Review,  184  111. 
226.228.  S^-ate  r.  Nelson,  in?  Minn.  319,  322.  Appeal  Tax  Court 
V.  Gill,  50  Md.  377.  396.  Allen  v.  Commonwealth,  98  Va.  80,  84. 
State  V.  Bontlev.  3  Zahr.  532.  542.  27  Am.  &  Eng.  Encyc.  of  Law, 
(3d  ed.)  928,  929.    37  Cvc  821,  864,  865. 


I 


SECT.    II.  J     liKLLOWS   lALLS  rOWEK  CO.    I'.    COMMONWEALTH.        103 

Our  decision  upuii  this  hianc'n  of  the  case  is  supported  by  direct 
adjudications  upon  tlic  same  point  in  Dyer  v.  Osborne,  11  K.  I.  3'31, 
Worth  V.  Commissioners  oi"  Ashe  County,  DO  N.  C.  409,  Appeal  Tax 
Courts.  Patterson,  50  ^Id.  354,  373,  Judy  v.  Beciiwitii,  137  Iowa,  :i4, 
33,  Seward  v.  Kising  Sun,  79  Ind.  351,  353,  ;>54,  Bacon  t'.  State  Tax 
Commissioners,  120  .Mich.  22,  2'.),  30,  Central  of  Georgia  liailway  v. 
Wright,  166  Fed.  Rep.  153,  159,  appeal  dismissed,  215  U.  S.  617, 
See  1  Cooley  on  Taxation,  (3d  ed.)  389.  Although  in  some  of  these 
opinions  the  question  of  the  power  of  the  domiciliary  State  of  the 
corporation  to  appropriate  to  itself  an  exclusive  taxation  situs  of  the 
shares  of  stock  was  not  much  discussed,  the  decisions  are  clear  to  the 
effect  that  it  cannot  do  so.  The  result  seems  to  be  supported  by  Kidd 
V.  Alabama,  188  U.  S.  730,  where  at  page  731  some  of  these  cases  are 
cited  with  approval.  It  conforms  to  the  policy  of  our  law  touching  a 
kindred  point  in  Dwight  v.  Boston,  12  Allen,  316,  where  it  was  said 
at  page  322,  "  our  Avhole  system  of  taxation,  as  established  and  prac- 
ticed, is  to  disregard  the  liability  of  shares  in  foreign  corporations  to 
taxation  in  the  States  where  they  are  situated."  We  are  aware  of  no 
authorities  to  the  contrary.  Oliver  v.  Washington  Mills,  11  Allen, 
268,  involved  quite  different  considerations. 

The  conclusion  is,  in  the  opinion  of  a  majority  of  the  court,  that  as 
matter  of  constitutional  power  the  Legislature  can  impose  a  property 
tax  upon  the  shares  of  stock  in  a  Vermont  corporation  owned  by  a 
natural  person  resident  in  this  Commonwealth.  The  exercise  of  such 
power  does  not  conflict  with  constitutional  guarantees  for  equal  pro- 
tection of  the  laws,  full  faith  and  credit  to  the  public  acts  of  other 
States,  nor  is  it  a  deprivation  of  property  wdthout  due  process  of  law. 
Of  course  it  does  not  impair  the  obligation  of  any  contract,  because 
it  is  to  be  inferred  that  our  tax  law  was  in  effect  long  before  the  ac- 
quisition of  the  stock  by  the  petitioner. 

The  petitioner  contends  that  its  bond  of  a  Vermont  corporation  is 
not  comprehended  within  "securities  which  if  owned  by  a  natural 
person  resident  in  this  Commonwealth  would  be  liable  to  taxation," 
as  these  words  are  used  in  §  43,  cl.  2.  Its  argument  is  that  such  a 
bond  is  a  debt  due  to  it  and  that  if  owned  by  a  natural  person  resident 
here  who  owed  money  in  excess  of  the  value  of  the  bond,  as  the  peti- 
tioner does,  then  such  natural  person  would  not  be  taxed  for  it.  Hale 
V.  County  Commissioners,  137  Mass.  111.  This  argument  is  falla- 
cious. These  words  in  the  statute  were  not  intended  to  establish  the 
same  standard  of  taxation  for  a  corporation  as  for  an  individual.  The 
reference  to  securities  which  would  be  taxable  if  owned  by  a  natural 
person  is  merely  for  the  purpose  of  determining  the  taxable  character 
of  the  securities.  Farr  Alpaca  Co.  v.  Commonwealth,  212  Mass.  156, 
162.  If  the  securities  possess  that  taxable  character,  then  they  are  to 
be  taken  into  account.  The  debts  owed  by  the  petitioner  are  all 
considered  in  determining  the  fair  market  value  of  its  share?,  pro- 
vided it  makes  proper  return  of  them.  It  is  not  entitled  under  the 
excise  tax  law  to  have  them  deducted  n  second  time. 

"Securities"  is  a  word  of  sufficiently  broad  import  to  include  a 
bond  like  that  in  question.    It  was  said  in  Boston  Eailroad  Holding 


104       BELLOWS  FALLS  POWER   CO.   V.   COMMONWEALTH.     [ciIAP.   II. 

Co.  V.  Commonwealtli,  215  Mass.  493,  that  *'  in  its  ordinary  accepta- 
tion the  words  '  securities '  includes  bonds  .  .  .  and  other  evidences 
of  indebtedness."  There  is  nothing  in  any  part  of  the  tax  law  to  show 
tliat  it  was  used  in  this  section  in  a  narrow  or  constricted  sense. 

In  this  respect  also  no  error  is  shown  in  the  action  of  the  tax  com- 
missioner in  the  determination  of  the  excise  tax  upon  the  petitioner. 

Petition  dismissed  with  costs. 


SECT.    H.]  ADAMS   KXI'EKS.S   CO.    /•.   OHIO.  10^ 


ADAMS   EXPRESS   COMPANY    /.   OHIO. 

SUPKKMK    Coi'RT    OF    THE    UnITEIJ    StATES.       I>i07. 
[Rejjorted  166  U.  S.  194  ;   166  U.  S.  185.] 

These  are  oases  involving  the  constitiitionalit}'  of  certain  laws  of  the 
State  of  Ohio  providing  for  the  taxation  of  telegraph,  telephone,  and 
express  companies,  and  the  validit}'  of  assessments  of  express  com- 
panies thereunder. 

The  general  assemblv  of  Ohio  passed,  April  27,  1893,  90  Ohio  Laws, 
330,  an  act  to  amend  and  supplement  §§  2777,  2778,  2779,  and  2780  of 
the  Revised  Statutes  of  that  State  (commonly  st^'led  "  The  Nichols 
Law  "),  which  was  amended  May  10,  1894.  The  law  created  a  state 
board  of  appraisers  and  assessors,  consisting  of  the  auditor  of  State, 
treasurer  of  State,  and  attorney  general,  which  was  charged  with  the 
duty  of  assessing  the  property  in  Ohio  of  telegraph,  telephone,  and 
express  companies.  By  the  act  as  amended,  between  the  first  and  thirty- 
first  days  of  May  annually  each  telegraph,  telephone,  and  express  com- 
pany doing  business  in  Ohio,  was  re<iuired  to  file  a  return  with  tlie 
auditor  of  State,  setting  forth  among  other  thing.s  the  number  of  shares 
of  its  capital  stock  ;  the  par  value  and  market  value  (or,  if  there  be  no 
market  value,  then  the  actual  value)  of  its  shares  at  the  date  of  the 
return ;  a  statement  in  detail  of  the  entire  real  and  personal  property 
of  said  companies  and  where  located,  and  the  value  thereof  as  assessed 
for  taxation.  Telegraph  and  telephone  companies  were  required  to 
return,  also,  the  whole  length  of  their  lines,  and  the  length  of  so  much 
of  their  lines  as  is  without  and  is  within  the  State  of  Ohio,  including 
the  lines  controlled  and  used,  under  lease  or  otherwise.  Express  com- 
panies were  required  to  include  in  the  return  a  statement  of  their  entire 
gross  receipts,  from  whatever  source  derived,  for  the  year  ending  the 
first  day  of  May,  of  business  wherever  done  ;  and  of  the  business  done 
in  the  State  of  Ohio,  giving  the  receipts  of  each  oflSce  in  the  State  ; 
also  the  whole  length  of  the  lines  of  rail  and  water  routes  over  which 
tiie  companies  did  business,  within  and  without  the  State.  Provision 
was  made  in  the  law  for  the  organization  of  the  board,  for  the  appoint- 
ing of  one  of  its  members  as  secretar\-  and  the  keeping  of  full  minutes 
of  its  proceedings.  The  board  was  required  to  meet  in  the  month  of 
•lune  and  assess  the  value  of  the  property  of  these  companies  in  Ohio. 
The  rule  to  be  followed  by  the  board  in  niaki ng  the  assessment  was 
that  "in  determining  the  value  of  the  property  of  said  companies  in 
this  State,  to  be  taxed  within  the  State  and  assessed  as  herein  pro- 
vided, said  board  shall  be  guided  by  the  value  of  said  property  as  de- 
termined by  the  value  of  the  entire  capital  stock  of  said  companies, 
and  such  other  evidence  and  rules  as  will  enable  said  board  to  arrive  at 
the  true  value  in  money  of  the  entire  propert}'  of  said  companies  within 
the  State  of  Ohio,  in  the  proportion  which  the  same  bears  to  the  entire 


106  ADAMS  EXPKESS  CO.   /».   OHIO.  [CHAP.  II. 

propert}-  of  said  companies,  as  determined  b}'  the  value  of  the  capital 
stock  thereof,  and  tlie  other  evidence  and  rules  as  aforesaid." 

As  to  telegraph  and  tele[)hone  companies,  the  board  was  required  to 
apportion  the  valuation  among  tlie  several  counties  through  whicli  tlie 
lines  ran.  in  the  proportion  that  tlie  lengtli  of  the  lines  in  the  respective 
counties  bore  to  the  entire  length  in  tlie  State;  in  the  case  of  express 
companies,  the  apportionment  was  to  ])e  made  among  the  several  coun- 
ties in  which  they  did  business,  in  the  pro[)ortioii  that  the  gross  receipts 
in  each  county  bore  to  tlie  gross  receipts  iu  tlie  State. 

The  amount  thus  apportioned  was  to  be  certified  to  the  count}'  audi- 
tor, and  placed  by  him  on  the  duplicate  "to  be  assessed,  and  the  taxes 
thereon  collected  the  same  as  taxes  assessed  and  collected  on  other 
Ijersonal  property,"  the  rate  of  taxation  to  be  the  same  as  that  on  other 
property  in  llie  local  taxing  district. 

The  valuation  of  all  the  real  estate  of  the  companies,  situated  in 
Ohio,  was  required  to  be  deducted  from  the  total  valuation,  as  fixed  by 
the  board. 

The  original  suits  were  brought  in  the  Circuit  Court  to  enjoin  the 
certification  of  the  apportioned  valuations  to  the  county  auditors,  as  to 
1893,  against  the  state  board  ;  as  to  1894  and  1895,  against  the  auditor 
of  State. ^ 

The  appellants  filed  a  petition  for  a  rehearing. 

Brewer,  J.  We  have  had  before  us  at  the  present  term  several 
cases  involving  the  taxation  of  the  property  of  express  companies, 
some  coming  from  Ohio,  some  from  Indiana,  and  one  from  Kenliick}' ; 
also  a  case  from  the  latter  State  involving  the  taxation  of  the  property 
of  the  Henderson  Bridge  Company.  The  Ohio  and  Indiana  cases  were 
decided  on  the  1st  of  February.  (16.5  U.  S.  194.)  Petitions  for  re- 
hearing of  those  cases  have  been  presented  and  are  now  before  us  for 
consideration. 

The  importance  of  the  questions  involved,  the  close  division  in  this 
court  upon  them,  and  the  earnestness  of  counsel  for  the  express  com- 
panies in  their  original  arguments,  as  well  as  in  their  briefs  on  this 
application,  lead  those  of  us  who  concurred  in  the  judgments  to  add  a 
few  observations  to  what  has  hitherto  been  said. 

Again  and  again  has  this  court  atiflrmed  the  proposition  that  no  State 
can  interfere  with  interstate  commerce  through  the  imposition  of  a  tax, 
by  whatever  name  called,  which  is  in  effect  a  trix  for  the  privilege  of 
transacting  such  commerce.  And  it  has  as  often  affirmed  that  such 
restriction  upon  the  power  of  a  State  to  interfere  with  interstate  com- 
merce does  not  in  the  least  degree  abridge  the  right  of  a  State  to  tax 
at  their  full  value  all  the  instrumentalities  nsed  fiT  such  commerce. 

Now  the  taxes  imposed  upon  express  companies  by  the  statutes  of 
the  three  States  of  Ohio,  Indiana,  and  Kentucky  are  certainly  not  in 
terms  "privilege  taxes."     They  purport  to  be  upon  the  property  of  the 

1  Part  of  the  statement  of  facts,  ariijiitDcnts  of  counsel,  and  the  opinion  of  the 
Court  upon  the  first  argument,  are  omitted.  —  Eu. 


SECT.    II.]  ADAMS  KXI'UESS   CO.   V.   OHIO.  107 

companies.  They  are,  tlu-roforo,  not,  in  luriii  at  least,  subject  to  aii\ 
of  the  denunciations  against  privilege  taxes  which  have  mi  often  come 
from  this  coiiit.  The  statutes  grant  no  privilege  of  doing  an  expres? 
business,  charge  nothing  lor  doing  such  a  business,  and  contemplate  only 
the  assessment  and  levy  of  taxes  upon  the  property  of  the  express  com- 
panies situated  within  the  respective  States,  And  the  only  really  sub- 
stantial question  is  whether,  properly  understood  and  administered,  they 
subject  to  tl>e  taxing  power  of  the  State  proi>erly  not  within  its  territorial 
limits.  The  l)urden  of  tlie  contention  of  the  express  companies  is  that 
the}'  have  within  the  limits  of  the  State  certain  tangible  property,  such 
as  horses,  wagons,  etc.  ;  tiiat  that  tangible  property  is  their  only  prop- 
erty within  the  State  ;  that  it  must  be  valued  as  other  like  property, 
and  upon  such  valuation  alone  can  taxes  be  assessed  and  levied  against 
them. 

But  this  contention  practicallv  ignores  the  existence  of  intangible 
property,  or  at  least  denies  its  liability  for  taxation.  In  the  complex 
civilization  of  to-day  a  large  portion  of  the  wealth  of  a  community  con- 
sists in  intaiigiltle  property,  and  there  is  nothing  in  the  nature  of  things 
or  in  the  lin)itations  of  the  Federal  Constitution  which  restrains  a  State 
from  taxing  at  its  real  value  such  intangible  property.  Take  the  sim- 
plest illustration  :  B,  a  solvent  man,  purchases  from  A  certain  prop- 
erty, and  gives  to  A  his  promise  to  pay,  say,  SIOO.OOO  therefor.  Such 
promise  may  or  may  not  be  evidenced  by  a  note  or  other  written  instru- 
ment. The  property  conveyed  to  15  may  or  ma^'  not  be  of  the  value  of 
$100,000.  If  there  be  nothing  in  the  way  of  fraud  or  misrepresenta- 
tion to  invalidate  that  transaction,  there  exists  a  legal  promise  on  the 
part  of  H  to  pay  to  A  $100,000.  That  promise  is  a  part  of  A's  prop- 
erty. It  is  something  of  value,  something  on  which  he  will  receive 
cash,  and  whicii  he  can  sell  in  the  markets  of  tlie  community  for  cash. 
It  is  as  certainly  property,  and  property  of  value,  as  if  it  were  a  build- 
ing or  a  steamboat,  and  is  as  justly  subject  to  taxation.  It  matters 
not  in  what  this  intangible  property  consists  —  whether  privileges,  cor- 
porate francliises,  contracts,  or  obligations.  It  is  enough  that  it  i* 
propert}'  which  though  intangible  exists,  which  has  value,  produces 
income,  and  passes  current  in  the  markets  of  the  world.  To  ignore 
this  intangible  propert}',  or  to  hold  that  it  is  not  subject  to  taxation  at 
its  acce[)led  value,  is  to  eliminate  from  the  reach  of  the  taxing  power  a 
large  portion  of  the  wealth  of  the  country.  Now,  whenever  separate 
articles  of  tangible  property  are  joined  together,  not  sin)|)ly  by  a  unity 
of  ownership,  but  in  a  unity  of  use,  there  is  not  infrequently  developed 
a  pro[)erty,  intangible  tliough  it  may  be,  which  in  value  exceeds  the 
aggregate  of  the  value  of  the  se[)arate  pieces  of  tangiltle  property. 
U[)on  what  theory  of  substantial  right  can  it  lie  adjudged  that  the  value 
of  this  intangible  property  must  be  excluded  from  the  tax  lists,  and 
the  onl}'  propert}'  placed  thereon  be  the  si'i)arale  [tieccs  of  tangible 
property  ? 

The   first  question   to  be  consideied   tlierelbre    is   wliether   there   i.s 


108  ADAMS  EXPRESS  CO.  V.  OHIO.  [ciTAP.  IT. 

belonging  to  these  express  corapanies  intangible  property  —  property 
differing  from  the  tangible  property  —  a  property  created  by  either  the 
combined  use  or  tiie  manner  of  use  of  the  separate  articles  of  tangible 
property-,  or  ihe  grant  or  acquisition  of  franchises  or  privileges,  or  all 
together.  To  say  that  there  can  be  no  such  intangible  property,  that 
it  is  something  of  no  value,  is  to  insult  the  common  intelligence  of 
every  man.  Take  the  Henderson  Bridge  Company's  property,  the 
validity  of  the  taxation  of  which  is  before  us  in  another  case.  The 
facts  disclosed  in  that  record  show  that  the  bridge  company  owns  a 
bridge  over  the  Ohio,  between  the  city  of  Henderson  in  Kentucky  and 
the  Indiana  shore,  and  also  ten  miles  of  railroad  in  Indiana;  that 
that  tangible  property  —  that  is,  the  bridge  and  railroad  track  —  was 
assessed  in  the  States  of  Indiana  and  Kentucky  at  $1,277,695.54,  such, 
therefore,  being  the  adjudged  value  of  the  tangible  property.  Thus  the 
physical  property  could  presumably  be  reproduced  b}-  an  expenditure 
of  that  sum,  and  if  placed  elsewhere  on  the  Ohio  River,  and  without 
its  connections  or  the  business  passing  over  it  or  the  franchises  con- 
nected with  it,  might  not  of  itself  be  worth  any  more.  As  mere  bridge 
and  tracks,  that  was  its  value.  If  the  .State's  power  of  taxation  is  lim- 
ited to  the  tangible  property,  the  company  should  only  be  taxed  in  the 
two  States  for  that  sum,  but  it  also  appears  that  it,  as  a  corporation, 
had  issued  bonds  to  the  amount  of  $2,000,000,  upon  which  it  was 
paying  interest;  that  it  had  a  capital  stock  of  31,000,000,  and  that 
the  shares  of  that  stock  were  worth  not  less  than  $90  per  share  in 
■  the  market.  The  owners,  therefore,  of  that  stock  had  property  which 
for  purposes  of  income  and  purjjoses  of  sale  was  worth  $2,900,000. 
What  gives  this  excess  of  value?  Obviously  the  franchises,  the  privi- 
leges the  company  possesses  —  its  intangible  property. 

Now,  it  is  a  cardinal  rule  which  should  never  be  forgotten  that  what- 
ever property  is  worth  for  the  purposes  of  income  and  sale  it  is  also 
worth  for  purposes  of  taxation.  Suppose  such  a  bridge  were  entirely 
within  the  territorial  limits  of  a  State,  and  it  appeared  that  the  bridge 
itself  cost  only  $1,277,000,  could  be  reproduced  for  that  sum,  and  yet 
it  was  so  situated  with  reference  to  railroad  or  other  connections,  so 
used  by  the  travelling  [)ublic,  that  it  was  worth  to  the  holders  of  it  in 
the  matter  of  income  $2,900,000,  could  be  sold  in  the  markets  for  that 
sum,  was  therefore  in  the  eyes  of  practical  business  men  of  the  value 
of  $2,900,000,  can  there  be  any  doubt  of  the  State's  power  to  assess  it 
at  that  sum,  and  to  collect  taxes  from  it  upon  that  basis  of  value? 
Substance  of  right  demands  that  whatever  be  the  real  value  of  any 
propert}',  that  value  may  be  accepted  by  the  State  for  purpose  of  taxa- 
tion, and  this  ought  not  to  be  evaded  b}'  an}-  mere  confusion  of  words. 
Suppose  an  express  company  is  incorporated  to  transact  business  within 
the  limits  of  a  State,  and  does  business  only  within  such  limits,  and  for 
the  purpose  of  transacting  that  business  purchases  and  holds  a  few 
thousands  of  dollars'  worth  of  horses  and  wagons,  and  yet  it  so  meets 
the  wants  of  the  people  dwelling  in  that  State,  so  uses  the  tangible 


SKCT.   11.]  ADAMS  EXl'RESS   CO.   V.   OHIO.  109 

property  which  it  possesses,  so  transacts  business  therein  that  its  stock 
becomes  in  the  markets  of  the  State  ol"  the  actual  cash  value  of  hun- 
dreds of  thousands  of  dollars.  To  the  owners  thereof,  for  the  purposes 
of  income  and  sale,  the  corporate  property  is  worth  hundreds  of  thou- 
.>>ands  of  dollars.  Does  sul)stanoe  of  right  require  that  it  shall  pay 
taxes  only  upon  the  thousands  of  dollars  of  tangil)le  property  which  it 
possesses?  Accumulated  wealth  will  laugh  at  the  crudity  of  taxing 
hiws  which  reach  only  the  one  and  ignore  the  otiier,  while  they  who 
own  tar.gil)le  property,  not  organized  into  a  single  producing  plant, 
will  feel  the  injustii;e  of  a  system  which  so  misplaces  the  burden  of 
taxation. 

A  distinction  must  be  noticed  between  the  construction  of  a  State 
law  and  the  power  of  a  State.  If  a  statute,  properly  construed,  con- 
templates only  the  taxation  of  horses  and  wagons,  then  those  belonging 
to  an  express  company  can  be  taxed  at  no  higher  value  than  those 
belonging  to  a  farmer.  But  if  the  vState  compr^^hends  all  property  in 
its  scheme  of  taxation,  then  the  good  will  of  an  organized  and  estab- 
lished industry  must  be  recognized  as  a  thing  of  value.  The  capital 
stock  of  a  cor{)oration  and  the  shares  in  a  joint  stock  company  repre- 
sent not  only  the  tangible  property,  but  also  the  intangible,  including 
therein  all  corporate  franchises  and  all  contracts,  privileges,  and  good 
will  of  the  concern. 

Now,  the  same  realit}-  of  the  value  of  its  intangible  propert}-  exists 
when  a  company  does  not  confine  its  work  to  the  limits  of  a  single 
State.  Take,  for  instance,  the  Adams  P^xpress  Company.  According 
to  the  return  filed  by  it  with  the  auditor  of  the  State  of  Ohio,  as  shown 
in  the  records  of  these  cases,  its  number  of  shares  was  120,000,  the 
market  value  of  each  §140  to  SloO.  Taking  the  smaller  sum.  gives  the 
value  of  the  company's  property  taken  as  an  entirety  as  Si 0,800.000. 
In  other  words,  it  is  worth  that  for  the  purposes  of  income  to  the 
holders  of  the  stock  and  for  purposes  of  sale  in  the  markets  of  the 
land.  But  in  the  same  return  it  shows  that  the  value  of  its  real  estate 
in  Ohio  was  only  $25,170;  of  real  estate  owned  outside  of  Ohio, 
$3,005, lo7.52;  or  a  total  of  $3,030,327.52;  the  value  of  its  personal 
property  in  Ohio,  $42,065 ;  of  personal  property  outside  of  Ohio, 
$1,117,426.05;  or  a  total  of  $1,159,491.05,  making  a  total  valuation 
of  its  tangible  property  $4,189,818.57,  and  upon  that  basis  it  insists 
that  taxes  shall  be  levied.  But  what  a  mockery  of  substijutial  justice 
it  would  be  for  a  corporatii)n,  whose  property  is  worth  to  its  stock- 
holders for  the  purposes  of  income  and  sale  $16,800,000,  to  be  ad- 
judged liable  for  taxation  only  upon  one  fourth  of  that  amount.  The 
value  which  property  bears  in  the  market,  the  amount  ft)r  which  its 
stock  can  be  bought  and  sold,  is  the  real  value.  Business  men  do  not 
pay  cash  for  property  in  moonshine  or  dreandand.  They  buy  and  pay 
for  that  which  is  of  value  in  its  power  to  produce  income,  or  for  pur- 
poses of  sale. 

It  is  suggested  that  the  c(im[):iiiy  may  have  bonds,  stocks,  or  other 


110  ADAMS  EXPRESS  CO.  V.   OHIO.  [ciIAP.  II. 

in\  I'stiuents  which  produce  a  part  of  the  vahie  of  its  capital  stock,  and 
which  have  a  special  situs  in  other  States  or  are  exeiii|)t  from  taxation. 
If  it  has,  let  it  show  the  fact.  Courts  deal  with  things  as  tlie}'  are,  and 
do  not  determine  rights  upon  mere  possibilities.  If  half  of  the  property 
of  the  Adams  tlxpress  Company,  which  by  its  own  showing  is  worth 
$1G, 000,000  and  over,  is  invested  in  United  States  bonds,  and  there- 
fore exempt  from  taxation,  or  invested  in  any  way  outside  the  business 
of  the  company  and  so  as  to  i)e  subject  to  purely'  local  taxation,  ht 
that  fact  be  disclosed,  and  then  if  the  State  of  Ohio  attempts  to  include 
within  its  taxing  })ower  such  exempted  property,  or  property  of  a  dif- 
ferent situs,  it  will  be  time  enougli  to  consider  and  determine  the  rights 
of  the  company.  That  if  sucli  facts  exist  they  must  be  taken  into  con- 
sideration by  a  State  in  its  proceedings  under  such  tax  laws  as  are  here 
presented  has  been  heretofore  recognized  and  distinctly  affirmed  b}' 
this  court.  Pittsburgh,  Cincinnati,  etc.  Railwa}'  Co.  v.  Backus,  154 
U.  S.  421,  443  ;  Western  Union  Telegraph  Co.  v.  Taggart,  163  U.  S.  1, 
23  ;  Adams  Express  Co.  v.  Ohio,  165  U.  S.  194,  227.  Presumably  all 
that  a  corporation  has  is  used  in  the  transaction  of  its  business,  and  if 
it  has  accumulated  assets  which  for  any  reason  affect  the  question  of 
taxation,  it  should  disclose  them.  It  is  called  upon  to  make  return 
of  its  pioperty,  and  if  its  return  admits  that  it  is  possessed  of  property 
of  a  certain  value,  and  does  not  disclose  anything  to  show  that  an}' 
portion  thereof  is  not  subject  to  taxation,  it  cannot  complain  if  the 
State  treats  its  property  as  all  taxable. 

But  where  is  the  situs  of  this  intangible  property?  The  Adams 
Express  Company  has,  according  to  its  showing,  in  round  numbers 
$4,000,000  of  tangible  proi)erty  scattered  through  different  States,  and 
with  that  tangible  property  thus  scattered  transacts  its  business.  By 
the  business  which  it  transacts,  by  combining  into  a  single  use  all  these 
separate  pie(;es  and  articles  of  tangible  proi)erty,  by  the  contracts, 
franchises,  and  privileges  whicli  it  has  acquired  and  possesses,  it  has 
created  a  corporate  property  of  tlie  actual  value  of  $16,000,000,  Thus, 
according  to  its  figures,  this  intangible  property,  its  franchises,  privi- 
leges, etc..  is  of  the  value  of  $12,000,000,  and  its  tangible  property  of 
only  $4,000,000.  Where  is  the  situs  of  this  intangil)le  property  ?  Is 
it  simply  where  its  home  office  is,  where  is  found  the  central  directing 
thought  which  controls  the  workings  of  the  great  machine,  or  in  the 
State  which  gave  it  its  corporate  franchise;  or  is  that  intangible  prop- 
erty distributed  wherever  its  tangible  property  is  located  and  its  work 
is  done?  Clearly,  as  we  think,  the  latter.  Every  State  within  which 
it  is  transacting  business  and  where  it  has  its  property,  more  or  less, 
may  rightfully  say  that  the  $16,000,000  of  value  which  it  possesses 
springs  not  merely  from  the  original  grant  of  corporate  power  by  tiie 
State  which  incorporated  it,  or  from  the  mere  ownership  of  the  tangible 
property,  but  it  springs  from  the  fact  llint  that  tangilile  property  it  has 
coml>ined  with  contracts,  franchises,  and  |)rivileges  into  a  single  unit  of 
property,  and  this  State  contributes  to  that  aggi-egate  value  not  merely 


KKCT.   II.]  ADAMS  EXT JiESS   CO.   V.  OHIO.  Ill 

the  separate  value  of  such  taugil)le  property  as  is  within  its  liniits,  but 
its  proportionate  sliare  of  the  vahie  of  the  entire  property'.  That  tliiss 
is  true  is  obvious  from  the  result  that  wouhl  follow  if  all  the  States 
other  than  the  one  which  created  the  corpoiation  could  and  should 
withhold  from  it  the  right  to  transact  express  business  within  their 
limits.  It  miglit  eontiiuie  to  own  all  its  tangible  property  wiiliin  each 
of  those  States,  l)ut  unul)le  to  transact  the  express  business  within  ilieir 
limits,  that  SI  2,()i)0.000  of  value  ;itli  ibutable  to  its  intangible  pnjpert}' 
would  shrivel  to  a  mere  trifle. 

It  ma}'  be  true  that  the  principal  ofliee  of  the  corporation  is  in  New 
York,  and  that  for  certain  purposes  the  maxim  of  the  common  law  was 
"  mobi/i(i  persond)/!  si'qinoifur,"  but  that  maxim  was  never  of  universal 
application,  and  seldom  interfered  with  the  right  of  taxation.  Pull- 
man's Palace  Car  Co.  /?.  Pennsylvania,  141  U.  S.  18,  22.  It  would 
certainly  seem  a  misapplication  of  the  doctrine  expressed  in  that  maxim 
to  hold  that  by  merely  transferring  its  princifial  office  across  the  river 
to  Jersey  City  the  situs  of  Si 2.0(10.000  of  intanuil)le  property  for  pur- 
poses of  taxation  was  chanL^ed  from  the  State  of  New  York  to  that  of 
New  Jersey. 

It  is  also  true  that  a  corporation  is,  for  purposes  of  jui'isdiction  in 
the  Federal  courts,  conclusively  presumed  to  be  a  citizen  of  the  State 
which  created  it,  but  it  does  not  follow  therefrom  that  its  franchise  to 
be  is  for  all  purposes  to  be  regarded  as  confined  to  that  State.  For 
the  transaction  of  its  business  it  goes  into  various  States,  and  wherever 
it  goes  as  a  corporation  it  carries  with  it  that  franchise  to  be.  ,  But  the 
franchise  to  be  is  only  one  of  the  franchises  of  a  corporation.  The 
franchise  to  do  is  an  independent  franchise,  or  ratlier  a  combina- 
tion of  franchises,  embracing  all  things  which  the  corporation  is  given 
power  to  do,  and  this  power  to  do  is  as  much  a  thing  of  value  and  a 
part  of  the  intangible  propertv  of  the  corporation  as  the  franchise  to 
be.  Franchises  to  do  go  wherever  the  work  is  done.  The  Southern 
Pacific  Railway  Company  is  a  corporation  chartered  by  tlie  State  of 
Kentucky,  yet  within  the  limits  of  that  State  it  is  said  to  have  no  tan- 
gil>le  property  and  no  office  for  the  transaction  of  business.  The  vast 
amount  of  tangible  property  which  by  lease  or  otherwise  it  holds  and 
operates,  and  all  the  franchises  to  do  which  it  exercises,  exist  and  are 
exercised  in  the  States  and  Territories  on  the  Pacific  Slope.  Do  not 
these  intangible  properties  —  these  franchises  to  do  —  exercised  in  con- 
nection with  the  tangible  property  which  it  holds,  create  a  substantive 
matter  of  taxation  to  be  asserted  b}-  every  State  in  which  that  tangible 
property  is  found  ? 

It  is  said  that  the  views  thus  expressed  open  the  door  to  possibilities 
of  gross  injustice  to  these  corporations,  through  the  conflicting  action 
of  the  different  States  in  matters  of  taxation.  That  may  be  so,  and 
the  courts  may  be  callid  upon  to  relieve  against  such  abuses.  But 
such  possil)i!ities  do  not  equal  the  wrong  which  sustaining  tlie  conten- 
tion of  the  appellant  would  at  once  do.     In  the  city  of  New  York  are 


112  ADAMS  EXPRESS  CO.  V.   OHIO.         [CJIAI'.  H. 

located  the  headquarters  of  a  corporation,  whose  corporate  properly  is 
confessedly  of  the  value  of  $16,000,000  —  a  value  which  can  be  realized 
by  its  stockholders  at  any  moment  they  see  fit.  Its  tangible  property 
and  its  business  is  scattered  through  many  States,  all  whose  powers 
are  invoked  to  protect  its  property  from  trespass  and  secure  it  in  the 
peaceful  tiansaction  of  its  widel}-  dispersed  business.  Yet  because  that 
tangible  property-  is  only  S4, 000, 000  we  are  told  that  that  is  the  limit 
of  the  taxing  power  of  these  States.  In  other  words,  it  asks  these 
Stales  to  protect  property  which  to  it  is  of  the  value  of  $16,000,000, 
but  is  willing  to  pay  taxes  only  on  the  basis  of  a  valuation  of  $4,000,000. 
The  injustice  of  this  speaks  for  itself. 

In  conclusion,  let  us  sa}'  that  this  is  eminently  a  practical  age  ;  that 
courts  must  recognize  things  as  they  are  and  as  possessing  a  value 
which  is  accorded  to  them  in  the  markets  of  the  world,  and  that  no 
finespun  theories  about  situs  should  interfere  to  enable  these  large  cor- 
porations, whose  business  is  carried  on  through  many  States,  to  escape 
from  bearing  in  each  State  such  burden  of  taxation  as  a  fair  distribu- 
tion of  the  actual  value  of  their  property  among  those  States  requires. 

The  petition  for  a  rehearing  is 

De?ried. 

White,  J.  (with  whom  were  Field,  Harlan,  and  Brown,  JJ.), 
dissenting.^ 

It  is  elementary  that  the  taxing  power  of  one  government  cannot  be 
lawfully  exerted  over  property  not  witliin  its  jurisdiction  or  territory 
and  within  the  territorv  and  jurisdiction  of  another.  The  attempted 
exercise  of  such  })ower  would  be  a  clear  usurpation  of  authority,  and 
involve  a  denial  of  the  most  obvious  conceptions  of  government.  This 
rule,  common  to  all  jurisdictions,  is  peculiarly  applicable  to  the  several 
States  of  the  Union,  as  they  are  by  the  Constitution  confined  within 
the  orbit  of  their  lawful  authority,  which  they  cannot  transcend  with- 
out destroying  the  legitimate  powers  of  each  other,  and,  therefore,  with- 
out violating  the  Conslitution  of  the  United  States. 

In  assessing  the  actual  intrinsic  value  of  tangible  property  of  ex- 
press companies  in  the  State  of  Ohio  it  was  the  duty  of  the  assessing 
board  to  add  to  such  value  a  proportionate  estimate  of  the  capital 
stock,  so  as  thereby-  to  assess  not  only  the  tungil)le  propert}'  within  the 
State,  but  also  along  with  such  profx-rty  a  part  of  the  entire  capital 
stock  of  the  corporation,  without  reference  to  its  domicil,  and  equally 
without  reference  to  the  situation  of  the  propert}'  and  assets  owned  b}- 
the  company  from  which  alone  its  capital  stock  derives  value.  In  other 
words,  altiiough  actual  property  situated  in  States  other  than  Ohio  may 
not  be  assessed  in  that  State,  yet  that  it  may  take  all  the  value  of  the 
property  in  other  States  and  add  such  portion  ther<»of,  as  it  sees  fit,  to 
the  assessment  in  Ohio,  and  that  this  process  of  taxation  of  property- 

1  This  opinion  was  dcliverod  upon  the  fir.-t  argument.  Tart  of  it  onlv  is  given. 
—Ed. 


SECT.   TT.]  ADAMS  EXPRESS   CO.    V.   OHIO.  1  1  Ji 

in  otl:er  States,  in  violation  of  the  Constitution,  becomes  legal  provitlcd 
only  it  is  culled  taxation  of  property  within  the  State. 

If  the  rule  contended  for  by  the  State  of  Ohio  l)e  true,  wiiy  wouM  it 
not  apply  to  a  corporation,  partnership,  or  iiulividual  engaged  in  iIk; 
dry  goods  business  or  any  other  business  having  branches  in  various 
States?  Would  it  not  be  as  proper  to  say  of  such  agencies,  as  it  is  of 
tlie  agencies  of  express  companies,  that  there  is  an  intellectual  unity 
of  earnings  between  the  main  establishment  and  all  such  agencies,  and 
therefore  a  right  to  assess  goods  found  in  an  agency  with  relation  to 
the  capital  and  wealth  of  the  original  house  and  all  the  otiier  branches 
situated  in  other  Stales?  Take  the  case  of  a  merchant  carrying  on  a 
general  commercial  business  in  one  State  and  having  connections  of 
confidence  and  credit  with  anotlier  merchant  of  gi'cat  capital  in  anollar 
State.  If  this  rule  be  true,  can  it  not  also  be  said  tliat  such  merchant 
derives  advantages  in  his  business  from  the  sum  of  the  capital  in  other 
States  which  may  be  availed  of  to  extend  his  credit  and  his  capacitv 
to  do  business,  and  that  therefore  his  tangil)le  property  must  be  valued 
accordingly?  Suppose  l)ankers  in  Boston,  Philadelphia,  and  New 
York  of  great  wealth,  owning  stocks  and  bonds  of  various  kinds,  send 
representatives  to  New  Orleans  with  a  limited  sum  of  mone}'  there  to 
commence  business.  These  representatives  rent  oftiees  and  buy  olllce 
furniture.  Is  it  not  absolutely  certain  that  the  business  of  thost-  indi- 
viduals would  be  largely  out  of  proportion  to  the  actual  capital  pos- 
sessed by  them,  because  of  the  fact  that  reflexly  and  indirectly  their 
business  and  credit  is  supported  by  the  home  offices?  In  this  situation, 
the  assessor  comes  for  their  tax  return.  lie  finds  noted  thereon  only  a 
limiteil  sura  of  money  and  the  value  of  the  otlice  furniture.  What  is 
to  prevent  that  official  under  the  rule  of  supposed  metaphysical  or  intel- 
lectual unity  between  property  from  saying:  "  It  is  true  you  have  but 
a  small  tangible  capital,  and  3'our  office  furniture  is  only  wortii  $200, 
but  the  value  of  property  is  in  its  use,  and  as  you  have  various  elements 
of  wealth  situated  in  the  cities  named,  I  will  assess  your  |)ropertv  be- 
cause of  its  use  at  a  million  dollars"'?  Such  conduct  would  be  ex- 
acth*  in  accord  with  the  power  of  taxation  which  it  is  here  claimed  the 
State  of  Ohio  possesses,  and  which,  as  I  understand  it,  the  court  now 
upholds.  To  give  the  illustrations,  I  submit,  is  to  point  to  the  con- 
fusion, injustice,  and  impossibility  of  such  a  rule. 


114:  NEW    OHI.EANS    V.    STEMPEL.  [CHAP.   II. 


NEW  ORLEANS  v.  STEMPEL. 
Supreme  Court  of  the  Unitkd  States.     1899. 

[Reported  175  United  States,  309.] 

Brewer,  J.^  This  case  came  on  appeal  from  the  Circuit  Court  of 
ine  United  States  for  the  Eastern  District  of  Louisiana.  It  is  a  suit 
brouglit  by  the  appellee  to  restrain  the  collection  of  taxes  levied  upon 
certain  personal  property  which  she  claims  was  exempt  from  taxation. 
.  .  .  The  assessment  .  .  .  was  of  $15,0U0  "•  money  in  possession,  on 
deposit,  or  in  hand,"  and  of  $800,000  "  money  loaned  on  interest,  all 
credits  and  all  bills  receival)le,  for  money  loaned  or  advanced,  or  for 
goods  sold  ;  and  all  credits  of  any  and  every  desc'ri[)tion."  .  .  , 

Under  the  circumstances  disclosed  by  the  testimony,  were  the  money 
and  credits  subject  to  taxation  ?  It  appears  that  these  credits  were 
evidenced  bv  notes  largely  secured  by  mortgages  on  real  estate  in  New 
Orleans;  that  these  notes  and  mortgages  were  in  the  city  of  New 
Orleans,  in  possession  of  an  agent  of  the  plaintiff,  who  collected  the 
interest  and  principal  as  it  became  due,  and  dei)osited  the  same  in  a 
bank  in  New  Orleans  to  the  credit  of  the  plaintiff.  The  question,  there- 
fore, is  distinctly  presented  whether,  because  the  owners  were  domi- 
ciled in  the  State  of  New  York,  the  moneys  so  deposited  in  a  bank 
within  the  limits  of  the  State  of  Louisiana,  and  the  notes  secured  by 
mortgages  situated  and  held  as  above  described,  were  free  from  taxa- 
tion in  the  latter  State.  Of  course  there  must  be  statutory  warrant  for 
such  taxation  ;  for  if  the  legislature  omits  any  property'  from  the  list  of 
taxables,  the  courts  are  not  authorized  to  correct  the  omission  and 
adjudge  the  omitted  propert}'  to  be  subject  to  taxation.^ 

From  this  review  of  the  decisions  of  the  Supreme  Court  of  the  State, 
it  is  obvious  that  moneys,  such  as  those  referred  to,  collected  as  in- 
terest and  principal  of  notes,  mortgages,  and  other  securities  kept 
within  the  State,  and  deposited  in  one  of  the  banks  of  the  State  for 
use  or  reinvestment,  are  taxable  under  the  act  of  1890.  They  are 
property  arising  from  business  done  in  the  State  ;  they  were  tangible 
property  when  received  by  the  agent  of  the  plaintiffs,  and  as  such  sub- 
ject to  taxation,  and  their  taxabilit}'  was  not,  as  the  court  holds,  lost 
b}-  their  mere  deposit  in  a  bank.  It  is  true  that  when  deposited  the 
moneys  became  the  property  of  the  bank,  and  for  most  purposes  the 
relation  of  debtor  and  creditor  arose  between  the  bank  and  the  de- 
positor ;  j'et,  as  evidently  the  moneys  were  to  be  kept  in  the  State  for 

^  Part  of  the  opinion  is  omitted. —  Ki). 

2  The  court  here  cited  Acts  I.,a.  1890,  c.  121 ;  Liverpool,  etc.  Ins.  Co.  v.  Board  of 
Assessors,  44  La.  Ann.  760;  Railey  v.  Board  of  Assessors,  44  La.  Ann.  765;  Clason  v. 
New  Orleans,  46  La.  Ann.  1 ;  Bliiefield  Banana  Co.  v.  Board  of  Assessors,  49  La.  Ann. 
43  ;  Parker  v.  Strauss,  49  La.  Ann.  1173  ;  London  &  Liverpool  Ins.  Co.  v.  Board  of 
Assessors,  51  La.  Ann.  1028.  —  Eu 


SECT.    II.]  NEW    ORLEANS    V.     STEMPEL.  11  f* 

reinvestment  or  other  use,  they  remained  still  subject  to  taxation,  ac- 
cording to  the  decision  in  49  La  Ann.  43.  With  regard  to  the  notes 
and  mortgages,  it  may  be  conceded  that  there  is  no  express  decision  of 
the  Supreme  Court  to  the  effect  that  they  were  taxable  under  the  law 
of  IHDO  ;  yt't  the  reasoning  of  that  court  in  several  cases  and  its  decla- 
rations, although  perhaps  only  dicta,  show  that  clearly  in  its  judgment 
they  had  a  local  situs  within  the  State,  and  were  by  the  statute  of  1890 
subject  to  taxation. 

When  the  question  is  whether  property  is  exempt  from  taxation,  and 
that  exemption  depends  alone  on  a  true  construction  of  a  statute  of  the 
State,  the  Federal  courts  should  be  slow  to  declare  an  exemption  in 
advance  of  any  decision  by  the  courts  of  the  State.  The  rule  in  such 
a  case  is  that  the  Federal  courts  follow  the  construction  placed  upon 
the  statute  by  the  State  courts,  and  in  advance  of  such  construction 
they  should  not  declare  property  beyond  the  scope  of  the  statute  and 
exempt  from  taxation  unless  it  is  clear  that  such  is  the  fact.  In  other 
words,  they  should  not  release  any  propert}-  within  the  State  from  its 
liability  to  State  taxation  unless  it  is  obvious  that  the  statutes  of  the 
State  warrant  such  exemption,  or  unless  the  mandates  of  the  Federal 
Constitution  compel  it. 

If  we  look  to  the  decisions  of  other  States,  we  find  the  frequent  ruling 
that  when  an  indebtedness  has  taken  a  concrete  form  and  become  evi- 
denced by  note,  bill,  mortgage,  or  other  written  instrument,  and  that 
written  instrument  evidencing  the  indebtedness  is  left  within  the  State 
in  the  hands  of  an  agent  of  the  non-resident  owner,  to  be  by  him  used 
for  the  purposes  of  collection  and  deposit  or  reinvestment  within  the 
State,  its  taxable  situs  is  in  the  State.  See  Catlin  v.  Hull,  21  Vt.  152, 
in  which  the  rule  was  thus  announced  (pages  159,  161)  :  — 

"It  is  undoubtedly  true  that,  by  the  generally  acknowledged  prin- 
ciples of  pul)lic  law,  personal  chattels  follow  the  person  of  the  owner, 
and  that  upon  his  death  they  are  to  be  distributed  according  to  the 
law  of  his  domicile ;  and,  in  general,  any  conveyance  of  chattels  good 
by  the  law  of  his  own  domicile  will  be  good  elsewhere.  But  this  rule 
is  merely  a  legal  fiction,  adopted  from  considerations  of  general  con- 
venience and  policy  for  the  benefit  of  commerce,  and  to  enable  persons 
to  dispose  of  their  property  at  their  decease  agreeably  to  their  wishes, 
without  being  embarrassed  by  their  want  of  knowledge  in  relation  to 
the  laws  of  the  country  where  the  same  is  situated.  But  even  this 
doctrine  is  to  be  received  and  understood  with  this  limitation,  that 
there  is  no  positive  law  of  the  country  where  the  property  is  in  fact 
which  contravenes  the  law  of  his  domicile  ;  for  if  there  is,  the  law  of  the 
owner's  domicile  must  yield  to  the  law  of  the  State  where  the  property 
IS  in  fact  situate." 

"We  are  not  only  satisfied  that  this  method  of  taxation  is  well 
founded  in  principle  and  upon  authority,  but  we  think  it  entirely  just 
and  equitable  that,  if  persons  residing  abroad  bring  their  property  and 


nn  NEW    ORI.EAlSrS    V.    STEMPEL.  [cnAP.   IT. 

invest  it  in  this  State,  for  the  purpose  of  (k'n\  ing  profit  froin  its  use 
and  employment  here,  and  thus  uviiil  themselves  of  the  benefits  and 
advantages  of  our  laws  for  the  protection  of  their  property,  their  prop- 
ert}-  should  yield  its  due  proportion  towards  the  support  of  the  govern- 
ment which  thus  protects  it." 

In  Goldgart  r.  People,  106  III.  25,  28,  the  court  said : — 

"If  the  owner  is  absent,  but  the  credits  are  in  fact  here,  in  the 
hands  of  an  agent,  for  renewal  or  collection,  with  the  view  of  reloaning 
the  monej'  by  the  agent  as  a  permanent  business,  they  have  a  situs  here 
for  the  purpose  of  taxation,  and  there  is  jurisdiction  over  the  thing." 

In  Wilcox  V.  Ellis,  14  Kan.  588,  the  power  of  the  State  to  tax  a 
citizen  and  resident  of  Kansas,  on  money  due  him  in  Illinois,  evidenced 
by  a  note  which  was  left  in  Illinois  for  collection,  was  denied,  the 
court  saying  (p.  603),  after  referring  to  the  maxim,  viobilia  sequuntur 
2^erso>iam  .-  — 

'•  Tills  maxim  is  at  most  only  a  legal  fiction  ;  and  Blackstone,  speak- 
ing of  legal  fictions,  says  :  '  This  maxim  is  invariably  observed,  that  no 
fiction  shall  extend  to  work  an  injury,  its  proper  operation  being  to 
prevent  a  mischief,  or  remedy  an  inconvenience,  that  might  result  from 
the  general  rule  of  law'  3  Blackstone  Com.  43.  Now,  as  the  State  of 
Illinois,  anil  not  Kansas,  must  furnish  the  plaintiff  with  all  the  remedies 
that  he  may  have  for  the  enforcement  of  all  his  rights  connected  with 
said  notes,  debts,  etc.,  it  would  seem  more  just,  if  said  debt  is  to  be 
taxed  at  all,  that  the  State  of  Illinois,  and  not  Kansas,  should  tax  it, 
and  that  we  should  not  resort  to  legal  fictions  to  give  the  State  of 
Kansas  the  right  to  tax  it." 

The  same  doctrine  was  affirmed  in  Fisher  v.  Commissioners  of  Rush 
County,  19  Kan.  414,  and  again  in  Blain  v.  Irby,  25  Kan.  499,  501,  in 
whicli  the  court  said,  referring  to  promissory  notes :  "  They  have  such 
an  independent  situs  that  the}'  may  be  taxed  where  they  are  situated." 

The  decisions  of  the  highest  courts  of  New  York,  in  which  State 
these  plaintiffs  reside,  are  to  the  same  effect.  In  People  v.  Trustees, 
48  N.  Y.  390,  397,  the  court  said  :  — 

"  That  the  furniture  in  the  mansion  and  the  moncj'  in  the  bank  were, 
under  these  provisions,  properly  assessable  to  the  relators  is  not  seri- 
ously disputed.  And  I  am  unable  to  see  wh}'  the  money  due  upon  the 
land  contracts  must  not  be  assessed  in  the  same  wa}'.  The  debts  due 
upon  these  contracts  are  personal  estate,  the  same  as  if  the}'  were  due 
upon  notes  or  bonds  :  and  such  personal  estate  may  be  said  to  exist 
where  the  obligations  for  payment  are  held.  Notes,  bonds,  and  other 
contracts  for  the  payment  of  money  have  always  been  regarded  and 
treated  in  the  law  as  personal  property.  They  represent  the  debts 
secured  by  them.  They  are  the  subject  of  larceny,  and  a  transfer  of 
them  transfers  the  debt.  If  this  kind  of  property  does  not  exist  where 
the  obligation  is  held,  where  does  k  exist  ?  It  certainly  does  not  exist 
where  the  debtor  may  be  and  follow  his  person.  And  while,  for  some 
purposes  in  the  law,  by  legal  fiction,  it  follows  the  person  of  the  cred- 


SKCT. 


IT.]  NKW     f)irT,KAXS     ('.     RTEMPKL.  11' 


itor  and  exists  where  he  may  be,  yet  it  has  been  settled  that,  foi'  the 
purpose  of  taxation,  this  legal  fiction  does  not,  to  the  full  extent,  apply, 
and  that  such  property  belonging  to  a  non-resident  eiedilor  may  be 
taxed  in  the  place  where  the  obligations  are  held  by  his  aguiit.  lloyt 
V.  Commissioners  of  Taxes,  23  N.  Y.  238  ;  The  People  v.  (Gardner,  61 
Barb.  352;  Catlin  v.  Mull,  21  Vt.  152." 

This  proposition  was  reaffirmed  in  People  ex  rel.  v.  Smith,  88  N.  Y. 
576,  in  which  the  Court  of  Appeals  of  that  State  held  that  a  resident  of 
New  York  was  not  liable  to  taxation  on  moneys  loaned  in  the  Stales  of 
Wisconsin  and  Minnesota  on  notes  and  mortgages,  which  notes  and 
mortgages  were  held  in  those  States  for  collection  of  principal  and  in- 
terest and  reinvestment  of  the  funds,  it  appearing  that  property  so 
situated  within  the  limits  of  those  States  was  there  subject  to  taxa- 
tion. See  also  Missouri  v.  St.  Louis  County  Court,  47  Mo.  594,  GOO; 
People  V.  Home  Insurance  Company,  28  Cal.  533  ;  Billinghurst  v.  Spink 
County,  5  S.  Dak.  84,  98;  /u  re  Jefferson,  35  Minn.  215;  Poppleton 
V.  Yamhill  County,  18  Ore.  377  ;  Redmond  v.  Commissioners,  87  N.  C. 
122  ;  Finch  v.  York  County,  19  Neb.  50. 

With  reference  to  the  decisions  of  this  court,  it  may  be  said  that 
tliere  has  never  been  any  denial  of  the  power  of  a  State  to  tax  securi- 
ties situated  as  these  are,  while  there  have  been  frequent  recognitions 
of  its  power  to  separate  for  purposes  of  taxation  the  situs  of  personal 
property  from  the  domicile  of  the  owner.  In  State  Tax  on  Foreign- 
held  Bonds,  15  Wall.  300,  it  was  held  that  while  tiie  taxing  power  of 
the  Slate  may  extend  to  property  within  its  territorial  limits,  it  cannot 
to  that  which  is  outside  those  limits  ;  and,  therefore,  that  bonds  issued 
by  a  railroad  company,  although  secured  hy  a  mortgage  on  property 
within  the  State,  were  not  subject  to  taxation  while  in  the  possession 
of  their  owners  who  were  non-residents,  the  court  saying:  '-We  are 
clear  that  the  tax  cannot  be  sustained ;  that  the  bonds,  being  held  by 
non-residents  of  the  State,  are  only  property  in  their  hands,  and  that 
they  are  thus  beyond  the  jurisdiction  of  the  taxing  power  of  the  State." 
But  in  the  same  case,  on  page  323,  the  court  declared  :  "  It  is  un- 
doubtedly true  that  the  actual  situs  of  personal  property  which  has  a 
visible  and  tangible  existence,  and  not  the  domicile  of  its  owner,  will, 
in  manv  cases,  determine  the  State  in  which  it  may  be  taxed.  The 
same  thing  is  true  of  public  securities  consisting  of  State  bonds  and 
bonds  of  municipal  bodies,  and  circulating  notes  of  l)anking  institu- 
tions. The  former,  by  general  usage,  have  accpiired  the  character  of, 
and  are  treated  as,  property  in  the  place  where  they  are  found,  though 
removed  from  the  domicile  of  the  owner ;  the  latter  are  treated  and 
pass  as  money  wherever  they  are.  But  other  personal  property,  con- 
sisting of  bonds,  mortgages,  and  debts  generally,  has  no  situs  indepen- 
dent of  the  domicile  of  the  owner,  and  certainly  can  have  none  where 
the  instruments,  as  in  the  present  case,  constituting  the  evidences  o( 
debt,  are  not  separated  from  the  possession  of  the  owhers." 

This  last  sentence,  properly  construed,  is  not  to  be  taken  as  a  denial 


lis  XEAV    ORLEAXS    V.    STEMPEL.  [cHAP.    IT. 

of  the  power  of  the  legislature  to  establish  an  independent  situs  for 
bonds  and  mortgages  when  those  properties  are  not  in  the  possession 
of  the  owner,  but  simply  that  the  fiction  of  law,  so  often  referred  to, 
declares  their  situs  to  be  that  of  the  domicile  of  the  owner,  a  declara- 
tion which  the  legislature  has  no  power  to  disturb  when  in  fact  they 
are  in  his  possession.  It  was  held  in  that  case  that  a  statute  requiring 
the  railroad  company,  the  obligor  in  such  bonds,  to  pay  the  State  tax, 
and  authorizing  it  to  deduct  the  amount  of  such  taxation  from  the 
interest  due  b}'  the  terms  of  the  bond,  was,  as  to  non-residents,  a 
law  impairing  the  obligation  of  contracts.  The  same  proposition  was 
affirmed  in  Murray  v.  Charleston,  96  U.  S.  432,  where  the  city  of 
Charleston  attempted  to  tax  its  obligations  held  by  non-residents  of 
the  State.  In  Tappan  v.  Merchants'  National  Bank,  19  Wall.  490,  the 
ruling  was,  that  although  shares  of  stock  in  national  banks  were  in  a 
certain  sense  intangible  and  incorporeal  personal  property',  the  law 
might  separate  them  from  the  persons  of  their  owners  for  purposes  of 
taxation,  and  give  them  a  situs  of  their  own.  See  also  Pullman's  Car 
Company  ?'.  Pennsylvania,  141  U.  S.  18,  22,  where  the  question  of  the 
separation  of  personal  property  from  the  person  of  the  owner  for  pur- 
poses of  taxation  was  discussed  at  length  ;  as  also  the  case  of  Savings 
Society  v.  Multnomah  County,  169  U.  S.  421,  427,  in  which  a  statute 
of  Oregon  taxing  the  interest  of  a  mortgagee  in  real  estate  was  ad- 
judged valid,  although  the  owner  of  the  mortgage  was  a  non-resident. 
Nor  is  there  anything  in  the  case  of  Kirtland  v.  Hotchkiss,  100  U.  S. 
491,  conflicting  with  these  decisions.  It  was  there  held  that  a  State 
might  tax  one  of  its  citizens  on  bonds  belonging  to  him,  although  such 
bonds  were  secured  b}'  mortgage  on  real  estate  situated  in  another 
State.  It  was  assumed  that  the  situs  of  such  intangible  property  as  a 
debt  evidenced  b}-  bond  was  at  the  domicile  of  the  owner.  There  was 
no  legislation  attempting  to  set  aside  that  ordinar}'  rule  in  respect  to 
the  matter  of  situs.  On  the  contrary,  the  legislature  of  the  State  of 
Connecticut,  from  which  the  case  came,  plainl}'  reaffirmed  the  rule,  and 
the  court  in  its  opinion  summed  up  the  case  in  these  words  (p.  499)  : 
"  Whether  the  State  of  Connecticut  shall  measure  the  contribution 
which  persons  resident  within  its  jurisdiction  shall  make  by  way  of 
taxes,  in  return  for  the  protection  it  affords  them,  by  the  value  of  the 
credits,  choses  in  action,  bonds  or  stocks  which  they  may  own  (other 
than  such  as  are  exempted  or  protected  from  taxation  under  the  Con- 
stitution and  laws  of  the  United  States)  is  a  matter  which  concerns 
only  the  people  of  that  State,  with  which  the  Federal  government  can- 
not rightfully  interfere." 

This  matter  of  situs  may  be  regarded  in  another  aspect.  In  the 
absence  of  statute,  bills  and  notes  are  treated  as  choses  in  action,  and 
are  not  subject  to  lev\'  and  sale  on  execution ;  but  by  the  statutes  of 
many  States  the\'  are  made  so  subject  to  seizure  and  sale  as  any  tan- 
gible personal  property.  1  Freeman  on  Executions,  s.  112;  4  Am.  & 
Eng.  E.  of  L.,  2d  ed..  282;   11  Am.  &  Eng.  E.  of  L.,  2d  ed.,  623. 


SECT.     II.]  NEW     ORLEANS     I'.     STEMPEL.  110 

Among  the  States  referred  to  in  these  authorities  as  having  statutes 
warranting  such  lev}'  and  sale  are  Califoriii:i,  Indiana,  Kenlucky,  Now 
York,  Tennessee,  Iowa,  and  Louisiana.  Brown  /•.  Anderson,  4  Martin 
(N.  S.),  41(;,  aflirnied  the  righlfiihioss  of  such  a  levy  and  sale.  In 
I'luker  r.  Bnllard,  2  La.  Ann.  33y,  it  was  held  that  if  a  note  was  not 
taken  into  the  actual  possession  of  the  sheriff,  a  sale  b}'  him  on  an 
execution  conveyed  no  title  on  the  purchaser,  the  court  saying:  "In 
the  case  of  Simpson  /•.  Allain,  it  was  held  lliat,  in  order  to  make  a 
valid  seizure  of  tangible  pnjperty,  it  is  necessary  that  the  sheriff  should 
take  the  propert}'  levied  upon  into  actual  possession.  7  Uob.  o04.  In 
the  case  of  Gobeau  v.  The  New  Orleans  &  Nashville  Railroad  Com- 
pan}',  the  same  doctrine  is  still  more  distinctly  announced.  The  court 
there  says:  'From  all  the  different  provisions  of  our  laws  al)ove  re- 
ferred to,  can  it  be  controverted  that,  in  order  to  have  them  carried 
into  effect,  the  sheriff  must  necessarily  take  the  property  seized  into 
his  possession  ?  This  is  the  essence  of  the  seizure.  It  cannot  exist 
without  such  possession.'  6  Rob.  348.  It  is  clear,  under  tiiese  au- 
thorities, that  the  sheriff  effected  no  seizure  of  the  note  in  controversy, 
and  consequently  his  subsequent  adjudication  of  it  conferred  no  title 
on  Bailey." 

The  same  doctrine  w-as  reaffirmed  in  Stockton  ik  Stanbrough,  3  La. 
Ann.  390.  Now,  if  property  can  have  such  a  situs  within  the  State  as 
to  be  subject  to  seizure  and  sale  on  execution,  it  woidd  seem  to  follow 
that  the  State  has  power  to  establish  a  like  situs  within  the  State  for 
purposes  of  taxation. 

It  has  also  been  held  that  a  note  mav  be  made  the  subject  of  seizure 
and  delivery  in  a  replevin  suit.  Graff  i>.  Shannon,  7  Iowa,  o08  ;  Smith 
V.  Eals,  81  Iowa,  235;   Pritehard  v.  Norwood,  155  Mass.  53L>. 

It  is  well  settled  that  bank  bills  and  municipal  bonds  are  m  such  a 
concrete  tangible  form  that  they  are  subject  to  taxation  where  found, 
irrespective  of  the  domicile  of  the  owner ;  are  subject  to  levy  and  sale 
on  execution,  and  to  seizure  and  delivery  under  replevin  ;  and  yet  they 
are  but  promises  to  pay,  —  evidences  of  existing  indebtedness.  Notes 
and  mortgages  are  of  tlie  same  nature  ;  and  while  the}'  ma}'  not  have 
become  so  generally  recognized  as  tangible  personal  property,  yet  they 
have  such  a  concrete  form  that  we  see  no  reason  why  a  State  may  not 
declare  that  if  found  within  its  limits  they  shall  be  subject  to  taxation. 

It  follows  from  these  considerations  that 

The  decree  of  the  Circuit  Court  must  be  reversed  and  the  case 
remanded  for  further  proceedings.^ 

Harlan  and  White,  JJ.,  dissenting. 

1  Ace.  Bristol  v.  Washington  County,  177  U.  S.  133;  Walker  v.  Jack,  88  Fed.  576  ; 
P.  V.  Home  Ins.  Co.,  29  Cal.  533 ;  In  re  Jefferson,  35  Minn.  217;  S.  v.  Beniley,  23 
N.  J.  L.  532.     See  Herron  v.  Keeran,  59  Ind.  472.  —  Ed. 


120  BRISTOL    V.    WASlLl>;(iTOX    COUXTY.  [ciIAl'.    II. 

BEISTOL  V.  WASHINGTON  COUNTY. 

SuPEEME  Court  of  the  Uxited  States.      ]!)00. 

[Reported  177  U.  S.  133.] 
Fuller,  C.  J.  In  the  course  of  the  administration  of  the  estate 
of  Cyrus  Jefferson,  deceased,  in  the  probate  court  of  the  County 
of  Washington,  Minnesota,  a  claim  was  presented  in  March,  188-4, 
against  the  estate  for  unpaid  taxes  for  the  years  1882  and  1883,  on 
credits  secured  by  mortgages,  amounting  to  about  $122,000,  and  the 
claim  was  allowed.  The  executors  appealed  to  the  district  court 
where  the  order  of  the  probate  court  was  affirmed.  The  case  was 
then  carried  by  the  executors  to  the  Supreme  Court  of  Minnesota, 
which,  on  May  2G,  1886,  affirmed  the  judgment.  In  re  Jefferson, 
35  ]\linnesota,  215.  It  was  objected  "  that  taxes  are  not  debts  which 
can  be  proved  against  the  estate  of  deceased  persons ; "  but  the  court 
overruled  the  objection,  saying :  "  It  is  not  material  whether  a  per- 
sonal tax  is  a  debt,  in  the  sense  that  an  action  against  the  person, 
may  be  maintained  to  recover  it.  It  is  at  least  a  claim  against 
the  property  which  survives  the  death  of  the  person  against  whom 
it  is  levied,  and  remains  a  claim  against  his  estate.  The  statute  re- 
gards it  as  a  debt  to  be  paid  out  of  the  estate.  In  prescribing  the  order 
of  preference  in  which  debts  shall  be  paid,  where  the  estate  is  not 
sufhcient  to  pay  all,  it  provides  (Gen.  St.,  1878,  c.  53,  §  38)  that, 
after  paying  the  necessary  expenses  of  the  funeral,  last  sickness  and 
administration,  the  executor  or  administrator  shall  'pay  the  debts 
against  the  estate  in  the  following  order.  .  .  .  Second,  public  rates 
and  taxes.'  This,  we  think,  is  conclusive  that,  for  the  purpose  of 
proof  and  payment  out  of  the  estate,  a  personal  tax  is  a  debt."  The 
court  further  held  that  a  tax  list  or  tax  duplicate,  duly  certified 
by  the  county  auditor,  as  required  by  statute,  was  prima  facie  evi- 
dence of  the  due  levy  of  the  taxes  in  it.  The  main  question  in  the 
case  was  whether  credits  due  to  a  resident  of  another  State,  from 
residents  within  Minnesota,  for  moneys  loaded  and  invested  by, 
and  which  credits  were  managed  and  controlled  by,  an  agent  of  the 
creditor,  resident  within  Minnesota,  could  be  taxed  in  Minnesota 
under  existing  statutes,  and  the  court  held  that  they  could.  The 
court,  after  referring  to  the  provisions  of  the  statute  that  all  personal 
property  in  the  State  was  subject  to  taxation,  and  that  all  moneys  and 
credits  should  be  listed  by  the  owner  or  his  agent,  where  one  or  the 
other  resided,  said :  "  It  is  to  be  taken,  therefore,  as  the  intent  of 
the  statute,  that  credits,  to  whomsoever  owing,  are  taxable  here  if 
they  can  be  regarded  as  personal  property  in  this  State;  that  is 
situated  in  this  State.  To  justify  the  imposition  of  tax  by  any 
State,  it  must  have  jurisdiction  ovor  the  person  taxed,  or  over  the 
property  taxed.  As  Jefferson  was  not  a  resident  of  this  State,  there 
was  no  jurisdiction  over  him.  But  if  the  property  on  account  of 
which  these  taxes  were  unpaid  was  within  this  State,  the  State  had 
jurisdiction  to  impose  them  as  it  might  impose  a  tax  upon  tangible 


SECT.   11.]  BKISTUL  V.   WASHINGTON  COUNTY.  121 

personal  property  permanently  situated  here,  and  to  enforce  the 
taxes  against  the  property.  The  authorities  which  we  cite  in  support 
of  the  proposition  that  tiie  credits  taxed  had  a  situs  here,  fully  sus- 
tain this. 

"For  many  purposes  the  domicil  of  the  owner  is  deemed  the  sittis 
of  liis  personal  property.  This,  however,  is  only  a  fiction,  from 
motives  of  convenience,  and  is  not  of  universal  application,  but 
yields  to  the  actual  aitus  of  the  property  when  justice  requires  that 
it  should.  It  is  not  allowed  to  be  controlling  in  matters  of  taxation. 
Thus,  corporeal  personal  property  is  conceded  to  be  taxable  at  the 
place  where  it  is  actually  situated.  A  credit,  which  cannot  be  re- 
garded as  situated  in  a  place  merely  because  the  debtor  resides  there, 
must  usually  be  considered  as  having  its  situs  where  it  is  owned, 
—  at  the  domicil  of  the  creditor.  The  creditor,  however,  may  give 
it  a  business  situs  elsewhere;  as  where  he  places  it  in  the  hands  of 
an  agent  for  collection  or  renewal,  with  a  view  to  reloaning  the 
money  and  keeping  it  invested  as  a  permanent  business."  After 
citing  Catlin  v.  Jlall,  21  Vermont,  152;  People  v.  Smith,  88  N.  Y. 
576;  Wilcox  v.  Ellis,  14  Kansas,  588;  Board  of  Supervisors  v.  Dav- 
enport, 40  Illinois,  197,  and  many  other  cases,  the  opinion  con- 
tinued thus :  "  The  obligation  to  pay  taxes  on  property  for  the 
support  of  the  government  arises  from  the  fact  that  it  is  under  the 
protection  of  the  government.  Now,  here  was  property  within  this 
State,  not  for  a  mere  temporary  purpose,  but  as  permanently  as 
though  the  owner  resided  here.  It  was  employed  here  as  a  business 
by  one  who  exercised  over  it  the  same  control  and  management  as 
over  his  own  property,  except  that  he  did  it  in  the  name  of  an  ab- 
sent principal.  It  was  exclusively  under  the  protection  of  the  laws 
of  this  State.  It  had  to  rely  on  those  laws  for  the  force  and  validity 
of  the  contracts  on  the  loans,  and  the  preservation  and  enforcement 
of  the  securities.  The  laws  of  New  York  never  operated  on  it.  If 
credits  can  ever  have  an  actual  situs  other  than  the  domicil  of  the 
owner,  can  ever  be  regarded  as  property  within  any  other  State, 
and  as  under  obligation  to  contribute  to  its  support  in  consideration 
of  being  under  its  protection,  it  must  be  so  in  this  case." 

It  was  thus  ruled  that  the  tax  list  of  personal  property  was  prima 
facie  evidence  of  the  due  levy  of  the  taxes;  that  such  taxes  could 
be  proven  against  decedents'  estates;  and  that  credits  secured  by 
mortgages,  the  result  of  the  business  of  investing  and  reinvesting 
moneys  in  the  State,  were  subject  to  taxation  as  having  their  situs 
there. 

Admonished  as  to  the  law  of  the  State  in  these  particulars,  Mrs. 
Bristol,  Mr.  Jefferson's  daughter,  continued  the  business  of  invest- 
ing and  reinvesting  in  the  same  way  and  throu2:h  the  same  agency 
until  her  own  death  in  August,  1894.  The  State  statute  required 
every  person  being  a  resident  of  the  State  to  list  his  personal  prop- 
erty, including  moneys,  credits,  etc.,  for  taxation  and  "  mnnevs  and 
other  personal  property  invested,  loaned  or  otherwise  controlled  by 
him  as  the  agent  or  attorney  or  on  account  of  any  other  person  or 
persons;"  and  in  cases  of  failure  to  obtain  a  statement  of  personal 


122  BRISTOL  V.  WASHINGTON  COUNTY.  [CKAP.   II. 

property  from  any  cause,  it  was  made  the  duty  of  the  assessor  to 
ascertain  its  amount  and  value  and  assess  the  same  at  such  amount 
as  he  believed  to  be  the  true  value  thereof.  Stat.  1894,  c.  11, 
§§  1515,  1546;  Stat.  1878,  c.  11,  §§  7,  38.  No  question  arises  here 
in  respect  of  the  regular  listing  of  these  investments  for  taxation 
from  1883  until  and  including  1894,  nor  in  respect  of  the  valuation 
thereof. 

]\[rs.  Bristol  had  invested  some  $18,000  of  her  own  mone}',  belonging 
to  her  prior  to  her  father's  death,  in  the  same  way  and  by  the  same 
agency,  and  invested  and  reinvested  in  the  same  manner  that  money 
and  moneys  derived  from  notes  and  mortgages  held  by  the  agent 
for  Mr.  Jefferson,  which  passed  to  her  on  his  death.  And  these  in- 
vestments were  taxable  and  were  taxed  year  by  year  during  all  this 
period  according  to  the  statutes  of  the  State  and  the  decision  of  the 
Supreme  Court  from  which  we  have  quoted. 

it  is  insisted,  however,  that  this  is  not  so,  because  in  1885,  which 
was  after  the  presentation  of  the  claim  against  the  father's  estate 
in  the  probate  court,  though  before  the  decision  b}^  the  Supreme 
Court,  the  notes  then  in  the  hands  of  the  agents  were  delivered  to  Mrs. 
Bristol,  and  thereafter  all  new  notes  taken  in  the  business  were  sent 
to  her  and  kept  by  her  in  her  home  in  New  York.  But  these  notes 
were  payable  as  before  at  the  office  of  the  agents  in  Minnesota ;  the 
mortgages  securing  the  notes  were  retained  by  the  agents,  and  the 
notes  were  returned  to  the  agents  from  time  to  time,  whenever  re- 
quired by  them,  for  the  purpose  of  renewal,  collection  or  foreclosure 
of  securities;  the  agents  continued  to  collect  the  money  due  on  the 
notes,  and  to  make  loans  in  the  name  of  Mrs.  Bristol,  sometimes 
under  her  husbands's  direction,  but  generally  on  their  own  judg- 
ment; and  they  remitted  money  to  Mrs.  Bristol  whenever  she  called 
for  the  same,  while  what  was  not  received  by  her  was  invested  in 
new  loans.  It  also  appeared  that  Mrs.  Bristol  had  given  the  agents 
a  power  of  attorney  empowering  them  to  satisfy  or  discharge,  or 
to  sell  and  assign,  any  and  all  mortgages  in  her  name  in  the  States 
of  Minnesota  and  Wisconsin,  but  that  she  revoked  this  instrument 
after  the  death  of  one  of  the  agents,  and  about  November,  1890, 
thereafter  executing  satisfaction  of  mortgages  herself. 

Nevertheless  the  business  of  loaning  money  through  the  agency 
in  Minnesota  was  continued  during  all  these  years  just  as  it  had 
been  carried  on  before,  and  we  agree  with  the  Circuit  Court  that  the 
fact  that  the  note;  were  sent  to  Mrs.  Bristol  in  New  York,  and  the 
fact  of  the  revocation  of  the  power  of  attorney,  did  not  exempt  these 
investments  from  taxation  under  the  statutes  as  expounded  in  the 
decision  to  which  we  have  referred.  And  we  are  unable  to  perceive 
that  any  rights  secured  by  the  Federal  Constitution  were  infringed 
by  the  statutes  as  thus  interpreted  so  far  as  the  situs  of  these  loans 
and  mortgages  was  concerned. 

In  New  Orleans  v.  Stempel,  175  U.  S.  309,  certain  taxes  were 
levied  on  money  on  deposit,  and  also  on  money  loaned  on  interest, 
credits  and  bills  receivable,  and  it  was  held  by  this  court  that  the 
statutes  of  Louisiana,  as  interpreted  by  the  courts  of  that  State,  in 


SECT.  II.]   METKOrOLlTAN  LIFE  INS.  CO.  V.    NEW  ORLEANS.   123 

authorizing  such  assessment,  did  not  violate  the  Constitution  of 
the  United  States.  Tliere  the  money,  notes  and  evidences  of  credits 
were  in  fact  in  Louisiana,  though  their  owners  resided  elsewhere. 
Still  under  the  circumstances  of  the  case  before  us,  we  think,  as  we 
have  said,  that  the  mere  sending  of  tlie  notes  to  New  York  and  the 
revocation  of  the  power  of  attorney  did  not  take  these  investments 
out  of  the  rule. 

Persons  are  not  permitted  to  avail  themselves  for  their  own  bene- 
fit of  the  laws  of  a  State  in  the  conduct  of  business  witliin  its  limits, 
and  then  to  escape  their  due  contribution  to  the  public  needs  through 
action  of  this  sort,  whether  taken  for  convenience  or  by  design.^ 

Reversed  and  remanded. 


METROPOLITAN  LIFE   INSURANCE  COMPANY  v. 
NEW   ORLEANS. 

Supreme  Court  of  thk  United  States.     1907. 

[Reported  205  U.  S.  395.] 

Moody,  J.  This  is  a  writ  of  error  to  review  the  judgment  of  the 
Supreme  Court  of  Louisiana,  which  sustained  a  tax  on  the  "  credits, 
money  loaned,  bills  receivable,"  etc.,  of  the  plaintiff  in  error,  a  life 
insurance  company  incorporated  under  the  laws  of  New  York,  where 
it  had  its  home  office  and  principal  place  of  business.  It  issued  poli- 
cies of  life  insurance  in  the  State  of  Louisiana  and,  for  the  purpose  of 
doing  that  and  otlier  business,  had  a  resident  agent,  called  a  superin- 
tendent, whose  duty  it  was  to  superintend  the  company's  business  gen- 
erally in  the  State.  The  agent  had  a  lo(;al  office  in  New  Orleans.  Tlie 
company  was  engaged  in  the  business  of  lending  money  to  the  holders 

*  The  court  found  that  the  recovery  of  a  portion   of  the  taxes  had  been 
barred  by  the  operation  of  the  statute  of  limitations. 


124       METROPOLITAN  I.IFE  INS.   CO.   V.  NEW  ORLEANS.        [CIIAP.  II. 

of  its  policies,  which,  when  the}'  had  reached  a  certain  point  of  maturity, 
were  regarded  as  furnishing  adequate  security  tor  kjans.  The  monej' 
lending  was  conducted  in  the  following  manner :  The  policy  holders 
desiring  to  obtain  loans  on  their  policies  applied  to  the  company's  agent 
in  iSew  Orleans.  If  the  agent  thought  a  loan  a  desirable  one  he  ad- 
vised the  company  of  the  apphcation  by  communicating  with  the  home 
office  in  New  York,  and  requested  that  the  loan  be  granted.  If  the 
home  office  approved  the  loan  the  company  forwarded  to  the  agent  a 
check  for  the  amount,  with  a  note  to  be  signed  b}' the  borrower.  The 
agent  procured  the  note  to  be  signed,  attached  the  policy  to  it,  and  for- 
warded both  note  and  policy  to  the  home  office  in  New  York.  He  then 
delivered  to  the  borrower  the  amount  of  the  loan.  When  interest  was 
due  upon  the  notes  it  was  paid  to  the  agent  and  by  him  transmitted  to 
the  home  office.  It  does  not  appear  whether  or  not  the  notes  were  re- 
turned to  New  Orleans  f4r  the  endorsement  of  the  payments  of  interest. 
When  the  notes  were  paid  it  was  to  the  agent,  to  whom  they  were  sent 
to  be  delivered  back  to  the  makers.  At  all  other  times  the  notes  and 
policies  securing  them  were  kept  at  the  home  office  in  New  York.  The 
disputed  tax  was  not  eo  nomine  on  these  notes,  but  was  expressed  to 
be  on  ''credits,  money  loaned,  bills  receivable,"  etc.,  and  its  amount 
was  ascertained  b}-  computing  the  sum  of  the  face  value  of  all  the  notes 
held  by  the  companj'  at  the  time  of  the  assessment.  The  tax  was 
assessed  under  a  law,  Act  170  of  1898,  which  provided  for  a  levy  of 
annual  taxes  on  the  assessed  value  of  all  property  situated  within  the 
State  of  Louisiana,  and  in  Section  7  provided  as  follows : 

"That  it  is  the  dut}'  of  the  tax  assessors  throughout  the  State  to  place 
upon  the  assessment  list  all  property  subject  to  taxation,  including  mer- 
chandise or  stock  in  trade  on  hand  at  the  date  of  listing  within  their 
respective  districts  or  parishes.  .  .  .  And jyrooided  further.  In  assess- 
ing mercantile  firms  the  true  intent  and  purpose  of  this  act  shall  be  held 
to  mean  the  placing  of  such  value  upon  stock  in  trade,  all  cash,  whether 
borrowed  or  not,  money  at  interest,  open  accounts,  credits,  &c.,  as  will 
represent  in  their  aggregate  a  fair  average  on  the  capital,  both  cash  and 
credits,  employed  in  the  business  of  the  part}'  or  parties  to  be  assessed. 
And  this  shall  apply  with  equal  force  to  any  person  or  persons  repre- 
senting in  this  State  business  interests  that  ma}'  claim  domicile  else- 
where, the  intent  and  purpose  being  that  no  non-resident,  either  by 
himself  or  through  any  agent,  shall  transact  business  here  without 
paying  to  the  State  a  corresponding  tax  with  that  exacted  of  its  own 
citizens  ;  and  all  bills  receivable,  obligations  or  credits  arising  from  the 
business  done  in  this  State  are  hereby  declared  as  assessable  within 
this  State  and  at  the  business  domicile  of  said  non-resident,  his  agent 
or  representative." 

The  evident  purpose  of  this  law  is  to  lay  the  burden  of  taxation 
equally  upon  those  who  do  business  within  the  State.  It  requires  that 
in  the  valuation  for  the  purposes  of  taxation  of  the  property  of  mercan- 
tile firms  the  stock,  goods,  and  credits  shall  be  taken  into  account,  to 


SECT.   II,]         MKTKOPOLITAN    MFE    INS.    CO.    V.    NEW   OHLEANS.        12.") 

the  end  that  the  average  capital  employed  in  the  business  shall  be  taxed. 
This  method  of  assessment  is  applied  impartially  to  the  citizens  of  the 
State  and  to  the  citizens  of  other  Slates  or  countries  doing  business, 
personally  or  through  agents,  within  the  State  of  Louisiana.  To  ac(;om- 
plish  this  result,  the  law  cxjjrcssly  provides  that  "all  l)ills  receivable, 
obligations  or  credits  arising  from  the  business  done  in  this  Slati-  shall 
be  assessable  at  the  business  domicile  of  the  resident."  Thus  it  is  clear 
that  the  measure  of  the  taxation  designed  by  the  law  is  the  fair  average 
of  the  capital  employed  in  the  business.  Cash  and  credits  and  bills 
receivable  are  to  be  taken  into  account  merely  l)ccause  tliey  represent 
the  ca[)ital  and  are  not  to  be  omitted  because  their  owner  happens  to 
have  a  domicile  in  another  State.  The  law  was  so  construed  by  the 
Supreme  Court  of  Louisiana,  where,  in  sustaining  the  assessment,  it 
was  said  : 

''There  can  be  no  doubt  that  the  seventh  section  of  the  act  of  189H, 
quoted  in  the  judgment  of  the  District  Court,  announced  the  policy  of 
the  State  touching  the  taxation  of  credits  and  bills  of  exchange  repre- 
senting an  amount  of  the  property  of  non-residents  equivalent  or  corre- 
sponding to  said  bills  or  credits  which  was  utilized  by  them  in  the 
prosecution  of  their  business  in  the  State  of  Louisiana.  The  evident 
object  of  the  statute  was  to  do  awav  witli  discrimination  theretofore  ex- 
isting in  favor  of  non-residents  as  against  residents,  and  place  them  on 
an  equal  footing.  The  statute  was  not  arbitrar}-,  but  a  legitimate  exer- 
cise of  legislative  power  and  discretion." 

The  tax  was  levied  in  obedience  to  the  law  of  the  State,  and  the  only 
(]uestion  here  is  whether  there  is  anything  in  the  Constitution  of  the 
United  States  which  forbids  it.  The  answer  to  that  question  depends 
upon  whether  the  property  taxed  was  within  the  territorial  jurisdiction 
of  the  Slate.  Property  situated  without  that  jurisdiction  is  beyond  the 
State's  taxing  power,  and  the  exaction  of  a  tax  upon  it  is  in  violation 
of  the  Fourteenth  Amendment  to  the  Constitution.  Louisville  Ferr}' 
Co.  V.  Kentucky,  188  U.  S.  385  ;  Delaware,  &c..  Railroad  Co.  v.  Penn- 
sylvania, 198  U.  S.  341  ;  Union  Refrigerator  Transit  Co.  i\  Kentucky. 
199  U.  S.  194.  But  personal  pro[)erty  may  l)e  taxed  in  its  permanent 
abiding  place,  although  the  domicile  of  the  owner  is  elsewhere.  It  is 
usually  easy  to  determine  the  taxable  situs  of  tangible  personal  property. 
But  where  personal  property  is  intangible,  and  consists,  as  in  this  case, 
of  credits  reduced  to  the  concrete  form  of  promissory  notes,  the  inquiry 
is  complicated,  not  only  by  the  fiction  that  tlie  domicile  of  personal 
property  follows  that  of  its  owner,  but  also  by  the  doctrine,  based  upon 
historical  reasons,  that  where  debts  have  assumed  the  form  of  bonds  or 
other  specialties,  they  are  regarded  for  some  purposes  as  being  the 
property  itself,  and  not  the  mere  representative  of  it,  and  may  have  a 
taxable  situs  of  their  own.  How  far  promissory  notes  are  assimilated 
to  specialties  in  respect  of  this  doctrine,  need  not  now  be  consiilered. 

The  question  in  this  case  is  controlled  by  the  authority  of  the  pre- 
vious decisions  of  this  court.     Taxes  under  this  law  of  Louisiana  have 


126       METROPOLITAN  LIFE  INS.   CO.   V.  NEW  ORLEANS.        [CHAP.  IT.    i 

bceti  twice  eoiisidorod  here,  and  assessments  upon  credits  arising  out  of 
investments  in  the  State  have  been  sustained.  A  tax  on  credits  evi- 
denced by  notes  secured  by  mortgages  was  sustained  where  the  owner, 
a  non-resident  who  had  inherited  them,  left  them  in  Louisiana  in  the 
possession  of  an  agent,  who  collected  the  principal  and  interest  as  they 
became  due.  New  Orleans  o.  Stempel,  175  U.  S.  309.  Again,  it  was 
held  tliat  where  a  foreign  banking  company  did  business  in  New  Orleans, 
and  tluougli  an  agent  lent  money  which  was  evidenced  by  checks  drawn 
upon  the  agent,  treated  as  overdrafts  and  secured  by  collateral,  the 
checks  and  collateral  remaining  in  the  hands  of  the  agent  until  the  trans- 
actions were  closed,  the  credits  thus  evidenced  were  taxable  in  Loui- 
siana. Board  of  Assessors  r.  Coniptoir  National,  191  U.  S.  388.  In 
both  of  these  cases  the  written  evidences  of  the  credits  were  continuously 
present  in  the  State,  and  their  presence  was  clearly  the  dominant  factor 
in  the  decisions.  Here  the  notes,  though  present  in  the  State  at  all 
times  when  the}"  were  needed,  were  not  continuously  present,  and  during 
tlie  greater  part  of  their  lifetime  were  absent  and  at  their  owner's  dom- 
icile. Between  these  two  decisions  came  the  case  of  Bristol  v.  Wash- 
ington County,  177  U.  S.  133.  It  appeared  in  that  case  that  a  resident 
of  New  York  was  engaged  through  an  agent  in  the  business  of  lending 
money  in  Minnesota,  secured  by  mortgages  on  real  property.  The 
notes  were  made  to  the  order  of  the  non-resident,  though  payable  in 
Minnesota,  and  the  mortgages  ran  to  her.  The  agent  made  the  loans, 
took  and  kept  the  notes  and  securities,  collected  the  interest  and  re- 
ceived payment.  The  property  tlius  invested  continued  to  be  taxed 
without  protest  in  Minnesota,  until  finally  the  course  of  business  was 
clianged  by  sending  the  notes  to  tlie  domicile  of  the  owner  in  New  York, 
where  the}'  were  kept  by  her.  The  mortgages  were,  iiowever,  retained 
by  the  agent  in  Minnesota,  though  his  power  to  discharge  them  was 
revoked.  The  interest  was  paid  to  the  agent  and  the  notes  forwarded 
to  him  for  collection  when  due.  Taxes  levied  after  this  change  in  the 
business  were  in  dispute  in  the  case.  In  delivering  the  opinion  of  the 
court,  Mr.  Chief  Justice  Fuller  said:  "Nevertheless,  the  business  of 
loaning  money  through  the  agency  in  Minnesota  was  continued  during 
all  these  years,  just  as  it  had  been  carried  on  before,  and  we  agree  with 
the  Circuit  Court  that  the  fact  that  the  notes  were  sent  to  Mrs.  Bristol 
in  New  York,  and  the  fact  of  the  revocation  of  the  power  of  attorney, 
did  not  exempt  these  investments  from  taxation  under  the  statutes  as 
expounded  in  the  decisions  to  which  we  have  referred.  ..." 

Referring  to  the  case  of  New  Orleans  v.  Stempel,  the  Chief  Justice 
said  : 

"There  the  moneys,  notes,  and  other  evidences  of  credits  were  in  fact 
in  Louisiana,  though  their  owners  resided  elsewhere.  Still,  under  the 
circumstances  of  the  case  before  us,  we  think,  as  we  have  said,  that  the 
mere  sending  of  the  notes  to  New  York  and  the  revocation  of  the  power 
of  attorney  did  not  take  these  investments  out  of  the  rule. 

"Persons  are  not  permitted  to  avail  themselves,  for  their  own  benefit. 


SECT.   IT.]        METROPOLITAN   LIFE  INS.   CO.   V.    NEW   OltLEANS.        127 

of  the  laws  of  a  State  in  the  conduct  of  business  williin  its  limits,  and 
then  to  escape  tlieir  due  contribution  to  the  pul)hc  need,  through  action 
of  this  sort,  whether  taken  for  convenience  or  Ijy  design." 

Accordiiigl}'  it  was  held  that  the  tax  was  not  forbidden  b}  the  Fed- 
eral Constitution. 

In  this  case,  the  controlling  consideration  was  the  |iii>enee  in  the 
State  of  the  capital  einplo\ed  in  the  business  of  lending  money,  and 
the  fact  tliat  the  notes  were  not  continuously  present  was  regarded  as 
immaterial.  It  is  impossible  to  distinguish  the  case  now  before  us  from 
the  Bristol  case.  Here  the  loans  were  negotiated,  the  notes  signed,  tlie 
security  talien,  the  interest  collected,  and  tlie  debts  [):iid  within  the  State. 
The  notes  and  securities  were  in  Louisiana  whenever  the  business  exi- 
gencies required  them  to  be  tliere.  Tlieir  removal  with  the  intent  that 
they  shall  return  wlienever  needed,  their  long  continued  though  not  per- 
manent absence,  cannot  have  the  effect  of  releasing  them  as  the  repre- 
sentatives of  investments  in  business  in  the  State  from  its  taxing  power. 
The  law  may  well  regard  the  place  of  their  origin,  to  which  they  intend 
to  return,  as  their  true  home,  and  leave  out  of  account  temporary  ab- 
sences, however  long  continued.  Moreover,  neither  the  fiction  that 
personal  property  follows  the  domicile  of  its  owner,  nor  the  doctrine 
that  credits  evidenced  by  bonds  or  notes  may  have  the  sifus  of  the  lat- 
ter, can  be  allowed  to  obscure  the  truth.  Blackstone  v.  Miller,  188 
U.  S.  189.  We  are  not  dealing  here  merely  with  a  single  credit  or  a 
series  of  separate  credits,  but  with  a  business.  The  insurance  company 
chose  to  enter  into  the  business  of  lending  money  within  the  State  of 
Louisiana,  and  employed  a  local  agent  to  conduct  that  business.  It 
was  conducted  under  the  laws  of  the  State.  The  State  undertook  to  tax 
the  capital  employed  in  the  business  precisel}'  as  it  taxed  the  capital  of 
its  own  citizens  in  like  situation.  For  the  purpose  of  arriving  at  the 
amount  of  capital  actually  employed,  it  caused  the  credits  arising  out  of 
the  business  to  be  assessed.  We  think  the  State  had  the  power  to  do 
this,  and  that  the  foreigner  doing  business  cannot  escape  taxation  upon 
his  capital  by  removing  temporarily-  from  the  State  evidences  of  credits 
in  the  form  of  notes.  Under  such  circumstances,  they  have  a  taxable 
situs  in  the  State  of  their  origin. 

The  judgment  of  the  Supreme  Court  of  Louisiana  is 

Affirmed. 


128  BEAT   V.    TEOrLE.  [CIIAP.   II. 


EEAT  V.  PEOPLE. 
Supreme  Court  of  Illinois.     1903. 

[Reported  201  III.  469.] 

Magrudee^  C.  J.  The  general  rule  is,  that  personal  property  is 
taxable,  or  has  its  taxable  situs,  at  the  domicile  of  the  creditor. 
The  principle,  applicable  in  such  cases,  is  that  which  is  embodied 
in  the  maxim,  mobilm  personam  sequuniur.  But  tliis  principle  does 
not  always  appl}^  for  the  purposes  of  taxation.  On  the  contrary, 
tangible  personal  property  may  be  taxed  where  it  is  situated  irre- 
spective of  ownership,  if  the  statute  shall  so  provide.  (Cooley 
on  Taxation,  pp.  269,  270;  Hayward  v.  Board  of  Eeview,  189  111. 
234.)  Speaking  of  the  rule  or  maxim  thus  referred  to,  we  said  in 
Hayward's  case,  supra:  "An  exception  to  this  rule  may  exist  when 
the  credits  are  kept  in  the  limits  of  the  State,  and  employed  per- 
manently in  business  by  the  owner  though  a  non-resident,  or  by  an 
agent  of  the  o'OTier,  residing  in  the  State,  and  having  the  physical 
control  of  the  papers  and  writings  evidencing  the  credits." 

In  Goldgart  v.  People,  106  111.  25,  we  said  (p.  28)  :  "The  stat- 
ute requires  the  'credit,'  as  well  as  other  personal  property,  to  be 
listed  by  the  owner,  if  a  resident  of  the  State,  or  if  it  be  controlled 
by  an  agent,  then  by  the  agent.  ...  If  the  owner  be  resident  in 
the  State  there  is  jurisdiction  over  his  person,  and  over  his  credits 
also,  which,  in  legal  contemplation,  in  the  absence  of  anything  show- 
ing they  have  a  siius  elsewhere,  accompany  him.  If  the  owner  is 
absent,  but  the  credits  are  in  fact  here  in  the  hands  of  an  agent  for 
renewal  or  collection  with  the  view  of  re-loaning  the  money  by  the 
agent  as  a  permanent  business,  they  have  a  situs  here  for  the  pur- 
pose of  taxation,  and  there  is  jurisdiction  over  the  thing."  The 
words,  thus  used  in  the  Goldgart  case,  were  quoted  with  approval 
in  Hayward  v.  Board  of  Review,  supra;  and  the  substance  of  the 
holding  in  the  Goldgart  case,  supra,  was  also  stated  and  referred 
to  with  approval  in  Matzenbaugh  v.  People,  194  111.  108.  In  Mat- 
zenbaugh's  case,  supra,  we  said  (p.  116)  :  The  general  rule  is,  the 
t^ixable  situs  of  credits  is  the  domicile  of  the  owner.  But  an 
exception  to  the  rule  arises  when  the  instruments,  which  evidence 
the  right  of  the  owner  to  receive  the  indebtedness  which  constitutes 
the  *  credits,'  are  in  the  hands  of  an  agent  of  the  owner  for  the  pur- 
pose of  enabling  such  agent  to  transact  the  business  of  the  owner, 
in  which  business  the  credits  constitute,  as  it  were,  the  subject 
matter  or  stock  in  trade  of  such  business."  In  Matzenbaugh's  case, 
also,  it  was  held  that  the  notes  and  securities  there  referred  to  were 
subject  to  taxation  under  the  laws  of  Illinois,  because  the  owner 
thereof  allowed  them  to  remain  in  the  hands  of  his  asrent  in  Illinois 
for  the  purpose  of  enabling  such  agent  to  successfully  and  conve- 
niently continue  the  prosecution  of  the  business  of  loaning  money, 
in  which  such  owner  had  lonsr  been  engaged. 

The  holding  of  the  cases  decided  bv  this  court  would  thus  seem  to  be 


SECT.    11.]  BEAT    V.    PEOPLE.  129 

that,  where  tlie  owner  oi"  such  credits  or  securities  is  a  non-resident 
of  Illinois  and  is  absent  from  that  State,  his  securities,  remaining 
in  this  ytate  in  the  hands  of  an  agent,  are  only  subject  to  taxation 
in  this  State  when  tliey  are  so  left  in  the  hands  of  the  agent  for 
the  purpose  of  having  them  renewed  or  collected,  in  order  tliat  the 
money,  realized  from  such  renewal  or  collection,  may  be  re-loaned 
by  the  agent  as  a  permanent  business.  The  credits  of  the  non-res- 
ident owner,  so  remaining  in  Illinois,  must  constitute  the  subject 
matter  or  stock  in  trade  of  the  business  of  the  owner  as  conducted 
by  the  agent. 

In  the  case  at  bar,  there  is  no  evidence  that  the  notes  and  mort- 
gage here  under  consideration  were  left  by  Mrs.  Reat  in  Illinois 
for  the  purpose  of  being  collected  and  re-loaned  as  a  permanent 
business  by  any  agent.  The  testimony  is  quite  clear  that,  after 
she  left  Illinois  and  went  to  California,  she  sold  a  farm  in  Illinois,  on 
which  slie  iiad  lived,  and  took  from  tlie  purchaser  notes  and  a  mort- 
gage for  the  purchase  money.  These  notes,  together  with  the  mort- 
gage, were  left  in  the  the  hands  of  Jeffries,  not  as  agent  for  the 
re-investment  of  the  money  to  be  collected  upon  the  notes  and  mort- 
gage, but  merely  for  the  convenience  of  the  maker  of  the  notes. 
Jeffries  collected  the  interest  from  the  maker  of  the  notes,  and  re- 
mitted such  interest  to  Mrs.  Reat  in  California,  and  charged  noth- 
ing for  his  services  in  collecting  the  interest  and  remitting  it.  There 
IS  no  evidence,  tending  to  show  tliat,  when  the  principal  of  the  notes 
should  be  paid,  it  was  not  also  to  be  remitted.  The  securities,  how- 
ever, were  not  left  with  any  idea  that  the  money  collected  should 
be  re-invested,  or  re-loaned,  or  permanently  used  in  any  business 
in  Illinois.  It  would,  therefore,  seem  to  follow  that,  although  the 
securities  thus  taxed  were  in  the  State  of  Illinois,  yet  they  were 
Bubject  to  the  rule,  which  makes  the  domicile  of  the  owner  the  tax- 
able situs  of  the  personalty.  We  are,  therefore,  of  the  opinion  that 
the  notes  and  mortgage  in  question  were  not  properlv  taxed  in  this 
State. 

In  view  of  the  conclusion  thus  reached,  it  is  not  necessary  to 
consider  the  objection,  that  at  the  time  the  county  collector  selected 
lots  13  and  16  above  mentioned  as  the  real  estate  to  be  charged 
with  the  personal  property  tax  already  mentioned,  the  lots  in  ques- 
tion were  not  owned  by  Emeline  Reat.  Inasmuch  as  the  notes  and 
mortgage  in  question  were  not  properly  subject  to  taxation  as  per- 
sonal property  in  Illinois,  it  is  immaterial  whether,  after  the  death 
of  ^Irs.  Reat,  and  after  the  title  had  descended  to  her  heirs,  the 
county  collector  properly  charged  the  tax  against  the  lots,  or  not. 

The  judgment  of  the  county  court  is  reversed,  and  the  cause  is 
remanded  to  that  court  for  further  proceedings  in  accordance  with 
the  views  herein  expressed. 

Reversed  and  remanded,  with  directions. 


130  'HAYS    V.    PACIFIC    MAIL    STEAMSHIP    CO.        [ciIAP,     IT. 


HAYS   V.   PACIFIC   MAIL   STEAMSHIP  CO. 

Supreme  Court  of  the  United  States.     1855. 
[Reported  17  Hoivard,  596.] 

Nelsok,  J.  This  is  a  writ  of  error  to  tlie  District  Court  for  the 
Northern  District  of  California. 

The  suit  was  brought  in  the  District  Court  by  the  companj'',  to 
recover  back  a  sum  of  money  which  they  were  com[)elled  to  pa}'  to  the 
defendant,  as  taxes  assessed  in  the  State  of  California,  upon  twelve 
steamships  belonging  to  them,  which  were  temporarily  within  the  juris- 
diction of  the  State. 

The  complaint  sets  forth  that  the  plaintiffs  are  an  incorporated  com- 
pany by  the  laws  of  New  York  ;  that  all  the  stockholders  are  residents 
and  citizens  of  that  State  ;  that  the  principal  office  for  transacting  the 
business  of  the  company  is  located  in  the  cit}'  of  New  York,  but,  for 
the  better  transaction  of  their  business,  the}'  have  agencies  in  the  city 
of  Panama,  New  Grenada,  and  in  the  city  of  San  Francisco,  Califor- 
nia ;  that  the}'  have,  also,  a  naval  dock  and  shipyard  at  the  port  of 
Benicia,  of  that  State,  for  furnishing  and  repairing  their  steamers ; 
that,  on  the  arrival  at  the  port  of  San  Francisco,  they  remain  no  longer 
than  is  necessary  to  land  their  passengers,  mails,  and  freight,  usually 
done  in  a  day ;  they  then  proceed  to  Benicia,  and  remain  for  repairs 
and  refitting  until  the  commencement  of  the  next  voyage,  usually  some 
ten  or  twelve  days ;  that  the  business  in  which  they  are  engaged  is  in 
the  transportation  of  passengers,  merchandise,  treasure,  and  the 
United  States  mails,  between  the  city  of  New  York  and  the  city 
of  San  Francisco,  by  way  of  Panama,  and  between  San  Francisco 
and  different  ports  in  the  Territory  of  Oregon  ;  that  the  company  are 
sole  owners  of  the  several  vessels,  and  no  portion  of  the  interest  is 
owned  by  citizens  of  the  State  of  California ;  that  the  vessels  are  all 
ocean  steamships,  employed  exclusively  in  navigating  the  waters  of  the 
ocean  ;  that  all  of  them  are  duly  registered  at  the  custom-house  in  New 
York,  where  the  owners  reside  ;  that  taxes  have  been  assessed  upon  all 
the  capital  of  the  plaintiffs  represented  by  the  steamers  m  the  State  of 
New  York,  under  the  laws  of  that  State,  ever  since  they  have  been 
employed  in  the  navigation,  down  to  the  present  time;  that  the  said 
steamships  have  been  assessed  in  the  State  of  California  and  county  of 
San  Francisco,  for  the  year  beginning  1st  July,  1851,  and  ending  30th 
June,  1852,  claiming  the  assessment  as  annually  due,  under  an  act  of 


SECT.    IJ.  I  HAYS   r.    PACIFrC    SWU.  STEAMSHIP   CO.  131 

the  legislature  of  the  State ;  that  tlie  taxes  assessed  amount  to 
Sll,9G2.aO,  and  were  paid  under  protest,  after  one  of  the  vessels  was 
advertised  for  sale  by  the  defendant,  in  order  to  prevent  a  sale  of  it. 

To  this  eoinplaint  the  defendant  demurred,  and  the  eourt  below  gave 
judgment  for  the  plaintiffs. 

By  the  3d  section  of  the  Act  of  Congress  of  31st  December,  1792,  it 
is  provided  that  every  ship  or  vessel,  except  as  tliereafter  provided, 
shall  be  registered  by  the  collector  of  the  district,  in  which  shall  be 
comprehended  the  port  to  which  the  ship  or  vessel  shall  belong  at  the 
time  of  her  registry,  and  which  port  shall  be  deemed  to  be  that  at  or 
nearest  to  which  the  owner,  if  there  be  but  one,  or,  if  more  than  one, 
nearest  to  the  place  where  the  husband,  or  acting  and  managing  owner, 
usually  resides  ;  and  the  name  of  the  ship,  and  of  the  port  to  which 
she  shall  so  belong,  shall  be  painted  on  her  stern,  on  a  black  ground, 
in  white  letters  of  not  less  than  three  inches  in  length  ;  and  if  any  ship 
or  vessel  of  the  United  States  shall  be  found  without  having  her  name, 
and  the  name  of  the  port  to  whicii  she  belongs,  painted  in  the  manner 
mentioned,  the  owner  or  owners  shall  forfeit  fifty  dollars. 

And  by  the  Act  of  29th  July,  1850  (9  Stats,  at  Large,  440),  it  is 
provided  that  no  bill  of  sale,  mortgage,  or  conveyance  of  any  vessel 
shall  be  valid  against  any  person  other  than  the  grantor,  etc.,  and  per- 
sons having  actual  notice,  unless  such  bill  of  sale,  mortgage,  or  convej-- 
ance  be  recorded  in  the  office  of  the  collector  of  the  customs  where 
such  vessel  is  registered  or  enrolled. 

These  provisions,  and  others  that  might  be  referred  to,  very  clearly 
indicate  that  the  domicile  of  a  vessel  that  requires  to  be  registered,  if 
we  may  so  speak,  or  home  port,  is  the  port  at  which  she  is  registered, 
and  which  must  be  the  nearest  to  the  place  where  the  owner  or  owners 
reside.  In  this  case,  therefore,  the  home  port  of  the  vessels  of  the 
plaintiffs  was  the  port  of  New  York,  where  they  were  duly  registered, 
and  where  all  the  individual  owners  are  resident,  and  where  is  also  the 
principal  place  of  business  of  the  company  ;  and  where,  it  is  admitted, 
the  capital  invested  is  subject  to  State,  county,  and  other  local  taxes. 

These  ships  are  engaged  in  the  transportation  of  passengers,  mer- 
chandise, etc.,  between  the  cit}'  of  New  York  and  San  Francisco,  by 
the  way  of  Panama,  and  between  San  Francisco  and  different  ports  in 
the  territory  of  Oregon.  Thej' are  thus  engaged  in  the  business  and 
commerce  of  the  country,  upon  the  highway  of  nations,  touching  at 
such  ports  and  places  as  these  great  interests  demand,  and  which  hold 
out  to  the  owners  sufficient  inducements  by  the  profits  realized  or  ex- 
pected to  be  realized.  And  so  far  as  respects  the  ports  and  harbors 
within  the  United  States,  they  are  entered  and  cargoes  discharged  or 
imlen  on  board,  independently  of  any  control  over  them,  except  as  it 
rt'spifts  such  municipal  and  sanitary  regulations  of  the  local  authorities 
as  are  not  inconsistent  with  the  constitution  and  laws  of  the  general 
g'n-(M-n.nent,  to  which  belongs  the  regulation  of  commerce  with  foreign 
/^  tioiis  and  between  the  States. 


132  HAYS    V.    PACIFIC    MAIL,   STEAMSHIP    CO,  [CHAP.    IT. 

\ 

Now,  it  is  quite  apparent  that  if  the  State  of  California  possessed 
the  authority  to  impose  the  tax  in  question,  any  otlier  State  in  the 
Union,  into  the  ports  of  which  the  vessels  entered  in  the  prosecution  of 
their  trade  and  business,  might  also  impose  a  like  tax.  It  may  be 
that  tlie  course  of  trade  or  otlier  circumstances  miglit  not  occasion  as 
great  a  delay  in  otlier  ports  on  the  Pacific  as  at  the  port  of  San  Francisco. 
But  this  is  a  matter  accidental,  depending  upon  the  amount  of  business 
to  be  transacted  at  the  particular  port,  the  nature  of  it,  necessary 
repairs,  etc.,  which  in  no  respect  can  affect  the  question  as  to  the  situs 
of  the  property,  in  viesv  of  the  right  of  taxation  hy  the  State. 

Besides,  whether  the  vessel,  leaving  her  home  port  for  trade  and 
commerce,  visits,  in  the  course  of  her  voyage  or  business,  several  ports, 
or  confines  her  operations  in  the  carrying  trade  to  one,  are  questions 
that  will  depend  upon  the  profitable  returns  of  the  business,  and  will 
furnish  no  more  evidence  that  she  has  become  a  part  of  the  personal 
property  within  ihe  State,  and  liable  to  taxation  at  one  port  than  at  the 
others.  She  is  within  the  jurisdiction  of  all  or  any  one  of  them  tempo- 
rarily, and  for  a  purpose  wholly  excluding  the  idea  of  permanently  abid- 
ing in  the  State,  or  changing  her  home  port.  Our  merchant  vessels 
are  not  unfrequently  absent  for  years,  in  the  foreign  carrying  trade, 
seeking  cargo,  carrying  and  unlading  it  from  port  to  port,  during  all 
the  time  absent ;  but  the}^  neither  lose  their  national  character  nor  their 
home  port,  as  inscribed  upon  their  stern. 

The  distinction  between  a  vessel  in  her  home  port  and  when  lying 
at  a  foreign  one,  or  in  the  port  of  another  State,  is  lamiliar  in  the 
admiralty  law,  and  she  is  subjected,  in  many  cases,  to  the  application 
of  a  different  set  of  principles.     7  Pet.  324  ;  4  Wheat.  438. 

We  are  satisfied  that  the  State  of  California-  had  no  jurisdiction  over 
these  vessels  for  the  purpose  of  taxation  ;  they  were  not,  properly, 
abiding  within  its  limits,  so  as  to  become  incorporated  with  the  other 
personal  property  of  the  State  ;  they  were  there  but  temporarily,  en- 
gaged in  lawful  trade  and  commerce,  with  their  situs  at  the  home  port, 
where  the  vessels  belonged,  and  where  the  owners  were  liable  to  be 
taxed  for  the  capital  invested,  and  where  the  taxes  had  been  paid. 

An  objection  is  taken  to  the  recovery  against  the  collector,  on  the 
ground,  mainly,  that  the  assessment  under  the  law  of  California,  b}' 
the  assessors,  was  a  judicial  act,  and  that  the  party  should  have  pur- 
sued his  remedy  to  set  it  aside  according  to  the  provisions  of  that  law. 

We  do  not  think  so.  The  assessment  was  not  a  judicial,  but  a 
ministerial  act,  and  as  the  assessors  exceeded  their  powers  in  making 
it,  the  officer  is  not  protected. 

The  payment  of  the  tax  was  not  voluntary,  but  compulsory-,  to  pre- 
vent the  sale  of  one  of  the  ships. 

Our  conclusion  is,  that  the  judgment  of  the  court  below  is  right, 
and  should  be  affirmed.^ 

1  Arc.  Johnson  v.  Debary-Baya  Merchants'  Line,  37  Fla.  499,  19  So.  640;  Roberts 
V.  Charlevoix,  60  Mich.  197  ;    S.  i;.  Haight,   30  N.  J.  L.  428. 


SECT.    II.  1  OLD  DOMINION  STEAMSIUI'   CO-    V.   VIUGINIA.  133 


OLD  DOMINION  STEAMSHIP  CO.  v.  VIRGINIA. 

Supreme  Court  of  the  United  States.     1IJ05. 

IReported  198  U.  8.  2'J9.] 

On  March  17,  1904,  the  Supreme  Court  of  Appeals  of  the  State 
of  Virginia,  in  a  matter  appealed  from  a  finding  of  tiie  State  Cor- 
poration Commission,  entered  the  following  lindings  and  order: 

*'  That  the  Old  Dominion  Steamship  Company  was  a  non-res- 
ident corporation,  having  been  incorporated  by  the  senate  and  house 
of  representatives  of  the  State  of  Delaware;  that  it  was  then  and 
had  been  for  many  years  theretofore  engaged  in  the  transportation 
of  passengers  and  freight  on  the  Atlantic  Ocean  and  communica- 
ting navigable  waters,  between  the  city  of  New  York,  in  the  State 
of  New  York,  and  Norfolk,  and  certain  other  ports  within  the  State 
of  Virginia.  That  said  steamship  company  in  the  prosecution  of 
its  said  transportation  business  owned  and  operated  the  vessel  prop- 
erty above  named;  that  these  vessels,  with  the  exception  of  the  tug 
Germania,  whose  movements  and  use  will  be  hereinafter  stated, 
visited  various  ports  or  points  within  the  State  of  Virginia,  for  the 
purpose  of  receiving  freight  and  passengers,  for  which  they  issued 
bills  of  lading  and  tickets  to  points  outside  the  State  of  Virginia: 
that  owing  to  the  shallow  waters  where  these  vessels  plied  it  was  im- 
possible in  most  instances  for  the  larger  ocean-going  steamers  of 
the  company  to  be  used;  that  in  consequence  the  vessels  above  enu- 
merated were  used  to  receive  the  freight  and  passengers  as  aforesaid, 
giving  the  shipper  of  freight  a  bill  of  lading  for  the  same,  destined 
to  New  York  and  other  points  outside  of  Virginia,  and  the  passen- 
ger a  ticket  to  his  destination,  and  thus  transported  such  freight  and 
passengers  to  deeper  water  at  Norfolk  and  Old  Point  Comfort  where, 
upon  such  bills  of  lading  and  tickets,  the  passengers  and  freight 
were  transferred  to  one  of  the  larger  ocean-going  vessels  of  the  steam- 
ship company,  and  so  the  ultimate  destination,  namely.  New  York, 
and  elsewhere  outside  of  Virginia,  was  reached;  that  any  other  busi- 
ness transacted  by  the  above-named  vessels  was  incidental  in  char- 
acter and  comparatively  insignificant  in  amount;  that  the  said 
vessels  were  built  and  designed  for  interstate  traffic  especially  and 
were  adjuncts  to  or  branches  of  the  main  line  of  the  Old  Dominion 
Steamship  Company  between  New  York  and  Norfolk ;  that  each  and 
all  of  the  said  vessels  were  regularly  enrolled,  under  the  United 
States  laws,  outside  of  the  State  of  Virginia,  with  the  name  and  port 
of  such  enrollment  painted  on  the  stern  of  each  of  them ;  thnt  the 
said  vessels,  though  regularly  enrolled  and  licensed  for  oonstwise 
trade,  were  then  used  on  old  established  routes  upon  navigable  waters 
within  Virginia,  as  follows,  to  wit : 

"First.  The  steamer  Hampton  Poads,  between  Fort  Monroe  and 
Hampton  and  Norfolk. 

"  Second.  The  steamer  Mnbiack,  between  point?  in  Mathews  and 
Gloucester  Counties  and  Norfolk. 


13 -i  OLD  DOMINION    STEAMSHIP    CO.    V.   VIRGINIA.        [ciIAP.    II. 

"Tliird.  The  steamers  Luray  and  i^ccomac,  between  Smithfield 
and  Norfolk. 

"  Fourth.  The  steamer  Virginia  Dare,  between  Suffolk  and  Nor- 
folk. 

"  Fifth.  The  steamers  Berkeley  and  Brandon,  between  Eichmond 
and  Norfolk;  and 

"  The  steamers  Berkeley  and  Brandon  ply  between  Richmond  and 
Norfolk.  These  two  steamers  were  completed  in  the  year  1901,  or 
early  in  19U2,  one  of  them  having  been  constructed  at  the  William 
E.  Trigg  shipyard  in  the  city  of  Eichmond,  and  the  other  outside 
of  the  State  of  A'irginia.  Early  in  the  year  1903  they  were  placed 
upon  tlie  line  between  Norfolk  and  Eichmond,  one  steamer  leaving 
Eichmond  each  evening  and  arriving  in  Norfolk  each  morning,  thus 
giving  a  night  trip  every  night  each  way  between  Eichmond  and 
Norfolk.  At  the  time  these  steamers  were  placed  upon  this  route 
and  since  that  time,  the  Old  Dominion  Steamship  Company  has  by 
public  advertisement  called  attention  to  the  fact  that  these  two 
steamers  were  especially  fitted  in  the  matter  of  stateroom  accom- 
modations for  carrying  passengers  between  Eichmond  and  Norfolk, 
and  the  said  two  steamers  have  since  that  time  been  advertising  for 
the  carriage  of  passengers  and  freight  on  their  route  between  Eich- 
mond and  Norfolk,  and  have  been  regularly  carrying  freight  and 
passengers  between  the  said  two  points  in  Virginia  as  well  as  taking 
on  freight  and  passengers  for  further  transportation  on  their  ocean 
steamers  at  Norfolk.  The  Old  Dominion  Steamship  Company  ap- 
plied under  the  revenue  laws  of  the  State  of  Virginia  for  a  license  to 
sell  liquor  at  retail  on  each  of  these  steamers,  and  on  July  1,  1902, 
there  was  granted  through  the  commissioner  of  the  revenue  of  the 
city  of  Eichmond  a  license  to  the  Old  Dominion  Steamship  Com- 
pany for  the  sale  of  liquor  at  retail  on  each  of  these  steamers,  said 
licenses  to  expire  on  April  30,  1903.  On  or  about  the  same  time, 
the  said  steamship  company  complied  with  the  revenue  laws  of  the 
United  States,  and  paid  the  necessary  revenue  tax  through  the  cus- 
tom house  at  the  city  of  Eichmond  for  the  purpose  of  selling  liquor 
at  retail  on  each  of  these  steamers.  In  the  spring  of  1903,  the  said 
steamship  company,  in  order  to  obtain  licenses  to  sell  liquor  at  retail 
on  each  of  these  steamers,  applied  for  the  same  in  the  city  of  Eich- 
mond and  complied  with  the  requirements  of  section  143  of  the  new 
revenue  law,  approved  April  16,  1903,  and  so  obtained  licenses  for 
the  years  1903-1904  to  sell  liquor  at  retail  on  each  of  these  steamers 
on  their  route  between  the  cities  of  Eichmond  and  Norfolk,  and 
likewise,  on  or  about  the  same  time,  complied  with  the  revenue  laws 
of  the  United  States  in  the  matter  of  selling  liquor  at  retail  on  each 
of  the  said  steamers  on  said  route. 

"  Sixth.  The  steam  tug  Germania,  which  was  used  in  the  harbor 
of  Norfolk  and  Hampton  Eoads  for  the  purpose  of  docking  the 
large  ocean-going  steamers  of  the  Old  Dominion  Steamship  Com- 
pany, and  the  transferring  from  different  points  in  tho=e  waters 
freight  from  connecting  lines  destined  to  points  outside  of  Virginia. 

"And  the  court,  having  maturely  considered  said  transcript  of 


SECT.   II. J  OLD  DOMINIOX   STEAMSIJIP    CO,    V.    VIRGINIA.  lo'j 

the  record  of  the  finding  aforesaid  and  the  arguments  of  counsel,  is 
of  opinion  that  the  legal  situs  of  the  vessels  and  barges  assessed  for 
taxation  by  the  finding  of  the  State  corporation  conintission  is,  for 
that  purpose,  within  the  jurisdiction  of  the  State  of  Virginia,  and  tliat 
said  property  is  amenable  to  the  tax  imposed  tliereon  —  notuitli- 
standing  the  fact  that  said  vessels  and  barges  are  owned  by  a  non- 
resident corporation,  that  they  may  have  been  enrolled  under  the  act 
of  Congress  at  some  port  outside  the  State  of  Virginia,  and  that 
they  are  engaged,  in  part,  in  interstate  commerce  —  and  doth  so 
decide  and  declare.  Therefore  it  seems  to  the  court  here  that  the 
finding  of  the  State  corporation  commission  appealed  from  is  with- 
out error,  and  said  finding  is  approved  and  allirmed.  It  is  further 
considered  by  the  court  that  the  appellee  recover  against  the  appel- 
lant thirty  dollars  damages  and  its  costs  by  it  about  its  defense  ex- 
pended upon  this  appeal." 

To  review  this  order  the  Old  Dominion  Steamship  Company  sued 
out  this  writ  of  error. 

Brewer,  J.  The  facts  being  settled,  the  only  question  is  one  of 
law.  Can  Virginia  legally  subject  these  vessels  to  State  taxation? 
The  general  rule  is  that  tangible  personal  property  is  subject  to  taxa- 
tion by  the  State  in  wliich  it  is,  no  matter  where  the  domicil  of  the 
owner  may  be.  This  rule  is  not  aU'ected  by  the  fact  that  the  prop- 
erty is  employed  in  interstate  transportation.  Pullman's  Palace  Car 
Company  v.  Pennsylvania,  141  TJ.  S.  18,  in  which  Mr.  Justice  Gray, 
speaking  for  the  court,  said  (p.  23)  : 

"  It  is  equally  well  settled  that  there  is  nothing  in  the  Constitu- 
tion or  laws  of  the  United  States  which  prevents  a  State  from  taxing 
personal  property,  employed  in  interstate  or  foreign  commerce,  like 
other  personal  property  within  its  jurisdiction." 

See  also  Cleveland,  &c.  Pailway  Co.  v.  Backus,  154  U.  S.  439,  445; 
Western  Union  Telegraph  Co.  v.  Taggart,  163  U.  S.  1,  14. 

This  is  true  as  to  water  as  well  as  to  land  transportation.  In 
Gloucester  Ferry  Company  v.  Pennsylvania,  114  U.  S.  196,  217,  Mr. 
Justice  Field,  in  delivering  the  opinion  of  the  court,  after  referring 
to  certain  impositions  upon  interstate  commerce,  added : 

"  Freedom  from  such  impositions  does  not,  of  course,  imply  ex- 
emption from  reasonable  charges,  as  compensation  for  the  carriage 
of  persons,  in  the  way  of  tolls  or  fares,  or  from  the  ordinary  taxa- 
tion to  which  other  property  is  subjected,  any  more  than  like  free- 
dom of  transportation  on  land  implies  such  exemption." 

See  also  Passenger  Cases,  7  How.  283,  in  which  Mr.  Justice  McLean 
said  (p.  402)  : 

"A  State  cannot  regulate  foreign  commerce,  but  it  may  do  many 
things  which  more  or  less  affect  it.  It  may  tax  a  ship  or  other 
vessel  used  in  commerce  the  same  as  other  property  owned  by  its 
citizens." 

The  same  doctrine  is  laid  down  in  the  same  case  bv  Mr.  Chief  .Jus- 
tice Taney  (p.  479).  See  also  Transportation  Company  v.  Wheel- 
ing, 99  tr.  S.  273.  That  the  service  in  which  these  vessels  were 
engaged  formed  one  link  in  a  line  of  continuous  interstate  commerce 


136  OLD  DOMINION  STEAMSHIP  CO.  V.  VIRGINIA.       [CHAP.  II. 


may  affect  the  State's  power  of  regulation  but  not  its  power  of  taxa- 
tion. True,  they  are  not  engaged  in  an  independent  service,  as  the 
cabs  in  Pennsylvania  Railway  Company  v.  Knight,  192  U.  S.  21, 
but,  being  wholly  within  the  State,  that  was  their  actual  situs.  And, 
as  appears  from  the  authorities  referred  to,  the  fact  that  they  were 
engaged  in  interstate  commerce  does  not  impair  the  State's  author- 
ity to  impose  taxes  upon  them  as  property.  Indeed,  it  is  not  con- 
tended that  these  vessels,  although  engaged  in  interstate  commerce, 
are  not  subject  to  State  taxation,  the  contention  being  that  they  are 
taxable  only  at  the  port  at  which  they  are  enrolled.  In  support  of 
this  contention  the  two  principal  cases  relied  upon  are  Hays  v.  The 
Pacific  Mail  Steamship  Company,  17  How.  596,  and  Morgan  v.  Par- 
ham,  16  Wall.  471.  Eegistry  and  enrollment  are  prescribed  by  sec- 
tions 4141  and  4311,  Eev.  Stat.,  for  vessels  of  the  United  States 
engaged  in  foreign  and  domestic  commerce.     Section  4141  reads : 

''  Sec.  4141.  Every  vessel,  except  as  is  hereinafter  provided,  shall 
be  registered  by  tlie  collector  of  that  collection  district  which  in- 
cludes the  port  to  which  such  vessel  shall  belong  at  the  time  of  her 
registry;  which  port  shall  be  deemed  to  be  that  at  or  nearest  to  which 
the  owner,  if  there  be  but  one,  or,  if  more  than  one,  the  husband  or 
acting  and  managing  owner  of  such  vessel,  usually  resides." 

By  sections  4131  and  4311  vessels  registered  or  enrolled  are  de- 
clared to  be  deemed  vessels  of  the  United  States.  As  stated  by 
Chancellor  Kent,  in  his  Commentaries,  vol.  3,  p.  *139: 

"The  object  of  the  registry  acts  is  to  encourage  our  own  trade, 
navigation,  and  ship-building,  by  granting  peculiar  or  exclusive 
privileges  of  trade  to  the  flag  of  the  United  States,  and  by  prohibit- 
ing the  communication  of  those  immunities  to  the  shipping  and 
mariners  of  other  countries.  These  provisions  are  well  calculated 
to  prevent  the  commission  of  fraud  upon  individuals,  as  well  as  to 
advance  the  national  policy.  The  registry  of  all  vessels  at  the  cus- 
tom house,  and  the  memorandums  of  the  transfers,  add  great  secu- 
rity to  title,  and  bring  the  existing  state  of  our  navigation  and 
marine  under  the  view  of  the  General  Government.  By  these  regu- 
lations the  title  can  be  eiTectually  traced  back  to  its  origin." 

This  object  does  not  require  and  there  is  no  suggestion  in  the 
statutes  that  vessels  registered  or  enrolled  are  exempt  from  the 
ordinary  rules  respecting  taxation  of  personal  property.  It  is  true 
by  sec.  4141  there  is  created  what  may  be  called  the  home  port  of 
the  vessel,  an  artificial  situs,  which  may  control  the  place  of  taxation 
in  the  absence  of  an  actual  situ.s  elsewhere,  and  to  that  extent  only 
do  the  two  cases  referred  to  go. 

Our  conclusion  is  that  where  vessels,  though  engaged  in  interstate 
commerce,  are  employed  in  such  commerce  wholly  within  the  limits 
of  a  State,  they  are  subject  to  taxation  in  that  State,  although  they 
may  have  been  registered  or  enrolled  at  a  port  outside  its  limits. 
The  conclusion,  therefore,  reached  by  the  Court  of  Appeals  of  Vir- 
ginia was  right,  and  its  judgment  is 

Affirmed. 


SECT.   II.]  TENNANT   V.   STATK   BOAJtU  Ol'   TAXES.  137 


TENNANT  v.  STATE  BOARD  OF  TAXES. 
Court  of  Ekkors  and  Appeals  of  New  Jersey.     1921. 

[Reported  113  Atl.  254.] 

Parker,  J.  This  is  a  dispute  over  the  right  of  Jersey  City  to  tax 
certain  personal  property  of  the  hankrupt  firm  of  Daily  v.  Ivins,  for 
taxes  of  the  year  1918.  .  .  .  By  the  various  appeals  from  the  local 
assessors  to  the  county  board  and  thence  to  the  State  board,  and  the 
certiorari  from  the  Supreme  Court,  all  disputed  matters  seem  to  have 
been  eliminated  except  a  fund  in  bank  and  a  tugboat  which  on  May 
20  was  moored  (as  we  were  informed  on  the  argument)  in  the  South 
Cove  of  Jersey  City.  .  .  . 

On  this  phase  of  the  case  the  argument  seems  to  be  that  the  fund 
and  the  tugboat,  being  held  by  the  trustee  in  bankruptcy,  were  in  the 
custody  of  the  law,  and  that  property  in  such  custody  is  not  taxable. 
On  the  broad  question  whether  property  of  a  bankrupt  in  the  hands 
of  a  trustee  in  bankruptcy  is  exen\pted  from  State  taxation,  the  an- 
swer of  the  United  States  Supreme  Court  is  decidedly  in  the  negative. 
Swarts  V.  Hammer,  194  U.  S.  441,  24  Sup.  Ct.  695,  48  L.  Ed. 
1060.  This  is  dispositive  of  the  taxability  of  the  bank  deposit  in 
this  aspect.  .  .  . 

It  is  next  argued  that  the  tug  was  further  in  the  "  custody  of  the 
law"  because  of  the  possession  by  the  marshal,  so  as  to  be  exempt. 
The  facts  are  that  the  tug  was  registered  at  the  New  York  custom 
house  and  had  been  ordinarily  employed  in  and  ai)out  the  waters  of 
New  York  Harbor.  About  the  time  of  the  bankruptcy  (appellant  was 
appointed  trustee  May  2,  1918)  the  tug  was  brought  into  tidewaters 
on  the  New  Jersey  side  adjacent  to  Jersey  City,  and  moored  there 
apparently  unused,  and  so  remained  until  after  it  was  sold,  June  17, 
1918.  During  this  period,  as  we  understand  the  evidence,  several 
libels  in  admiralty  Avere  filed,  and  served  by  the  United  States  mar- 
shal for  the  district  of  New  Jersey.  Sale  was  made  jointly  by  the 
appellant  as  trustee  and  by  the  marshal,  and  from  the  proceeds 
the  libels  were  paid  off  and  the  balance  was  paid  to  or  retained  by  the 
trustee.  The  sale  price  was  $30,000,  and  this  was  adopted  by  the 
State  Board  as  the  fair  value  of  the  tug,  which  was  subjected  to  tax 
at  that  valuation  together  with  the  fnnd  already  in  bank. 

As  a  preliminary  to  ascertaining  whether  this  tug  was  exempt 
because  in  the  custody  of  the  marshal,  it  is  necessary  to  determine 
the  other  question  raised,  wbother  apart  from  such  claim  of  exemp- 
tion it  was  taxable  on  May  20,  1918.  in  the  taxing  district  of  Jersey 
City.  In  our  opinion  it  was  so  taxable.  As  an  active  tug  plying  in 
the  waters  of  New  York  Harbor  it  was  taxable  at  the  residence  of 
the  owners  or  the  permanent  sifns  of  the  property,  it  is  immaterial 
which.  American  Mail  Steamship  Co.  v.  Crowell,  76  N.  J.  Law,  54, 
68  Atl.  75? ;  Shrewsbury  v.  Merchants'  Steamboat  Co..  76  N.  J.  Law, 
407,  69  Atl.  958 ;  West  Shore  R.  Co.  v.  State  Board,  82  N.  J.  Law, 


138  TENNANT  1?.  STATE  BOARD  OF  TAXES.      [CHAP.  II. 

37,  81  xUl.  351;  Id.,  8-4  N.  J.  Law,  768,  85  Atl.  826.  But  with  the 
bankruptcy  its  condition  became  one  of  passivity;  it  was  a  mere 
chattel  secured  from  drifting  and  awaiting  a  sale.  Had  it  been 
drawn  out  on  a  ship  railway  or  even  tied  up  to  a  wharf  on  the  Jersey 
City  water  front,  its  taxable  situs  would  be  indubitable.  While  the 
point  does  not  seem  to  be  definitely  argued,  we  gather  from  the  asser- 
tion that  the  tug  was  in  the  "  tidewaters  of  New  York  Bay  "  that  it 
is  claimed  to  have  been  out  of  the  taxing  jurisdiction  of  New  Jersey 
because  of  the  interstate  treaty  limiting  the  "jurisdiction"  of  New 
Jersey  on  the  waters  of  New  York  Bay  and  the  Iludson  river.  C.  S.  p. 
5358.  But  this  jurisdiction  has  been  held  by  the  courts  of  both 
New  York  and  New  Jersey  to  be  a  jurisdiction  simply  for  the  ex- 
ercise of  the  police  power.  People  v.  Central  E.  E.  of  N.  J.,  12  N.  Y. 
283;  Central  E.  E.  Co.  v.  Jersey  City,  70  N.  J.  Law,  81,  56  Atl. 
239;  S.  C,  209  U.  S.  473,  28  Sup.  Ct.  592,  52  L.  Ed.  896.  In  the 
opinion  of  Mr.  Justice  Garrison  in  70  N.  J.  Law  at  page  97,  56  Atl. 
at  page  245,  it  is  declared  that  "  the  sovereign  power  of  taxation 
over  all  the  territory  thus  defined  (i.  e.,  to  the  middle  of  the  Hudson 
river)  resides  in  the  State  of  New  Jersey."  See  Cook  v.  Weigley, 
72  N.  J.  Eq.  221,  65  Atl.  196.  A  vessel  more  or  less  permanently 
moored  within  the  territory  is,  in  our  opinion,  personal  property 
"found"  within  the  taxing  district,  in  the  same  manner  as,  e.  g., 
coal  on  storage  pending  a  sale  and  removal.  Lehigh  &  Wilkes-Barre 
Coal  Co.  V.  Junction,  75  N.  J.  Law,  922,  68  Atl.  806,  15  L.  E.  A. 
(N.  S.)  514.  It  is  pertinent  to  note,  wliile  on  this  subject,  that  the 
libels  against  this  tug  were  filed  in  the  United  States  District  Court 
for  the  District  of  New  Jersey,  and  the  seizure  was  made  by  the 
marshal  of  that  court,  in  conformity,  as  it  seems  to  us,  with  the  stat- 
utory provision  that  "the  State  of  New  Jersey  shall  constitute 
one  judicial  district"  (Eev.  Stat.  IJ.  S.  §  531;  Comp  Stats.  TJ.  S. 
§  1082)  treated  as  meaning  that  the  district  extends  to  the  middle 
of  the  river  for  all  purposes  of  executing  civil  process  out  of  that 
court. 

The  tug,  then,  being  legally  "found"  in  the  taxing  district  of 
Jersey  City,  it  only  remains  to  inquire  whether  because  under  seizure 
by  the  marshal  it  was  exempted  by  any  rule  of  law  from  taxation  as 
against  its  general  owners,  Dailey  v.  Ivins,  or  the  trustee  in  bank- 
ruptcy, either  by  provision  in  the  statute  or  rule  laid  down  by  decision 
of  the  courts.  It  is  not  exempted  by  statute;  .  .  .  and  we  think  our 
reports  will  be  searched  in  vain  for  a  case  wherein  it  was  held,  or 
even  claimed,  that  real  or  personal  property  otherwise  liable  to  taxa- 
tion is  exempt  because  of  having  been  levied  on  or  attached  by  court 
process.  The  court  officer  himself  (as  in  this  case  the  marshal)  is 
ordinarily  not  liable  for  the  tax  (37  Cyc.  797;  In  re  Kellinger,  9 
Paige  N.  Y.  Ch.  62) ;  but  that  does  not  exempt  the  property  nor, 
as  we  view  it,  the  general  owner. 

These  considerations  lead  to  an  affirmance  of  the  judgment. 


SECT.  II.]     MCCUTCIIEN  V.  BOARD  OF  EQUALIZATION  OF  TAXES.    139 


McCUTCHEN  v.  BOARD  OF  EQUALIZATION  OF  TAXES. 
Supreme  Court  of  New  Jersey.     1915. 

[Reported  87  N.  J.  L.  370.] 

Swayze,  J.  The  question  is  the  same  decided  recently  in  a  case 
involving  the  tax  of  anotlier  year.  The  opinion  in  that  case  is  said 
not  to  have  been  reported.  It  may  serve  as  our  opinion  in  the 
present  case. 

The  question  is  the  right  of  Jersey  City  to  tax  flour  held  on  a  pier 
in  Jersey  City  for  the  purpose  of  repacking  and  blending.  The  Hour 
is  shipped  from  the  northwest  to  JS'ew  York  City,  on  through  bills  of 
lading;  freight  is  paid  through.  Instead  of  transporting  the  Hour 
immediately  upon  its  arrival  across  the  river  by  lighters,  it  is  un- 
loaded and  held  at  the  pier  for  the  purposes  mentioned.  The  lia- 
bility of  the  railroad  company  for  local  taxes  on  this  pier  was  before 
the  Court  of  Errors  and  Appeals  in  Lehigh  Valley  Railroad  Co. 
V.  Jersey  City,  80  N.  J.  L.  298.  The  test  of  the  right  to  tax  goods 
shipped  from  one  State  to  another  and  detained  in  course  of  trans- 
portation is  settled  by  the  case  of  Lehigh  and  Wilkes-Barre  Coal  Co. 
V.  Junction,  75  N.  J.  L.  922.  If  the  goods  are  actually  in  the  course 
of  a  continuous  journey,  they  are  not  subject  to  taxation.  The  diffi- 
culty is  to  decide  what  breaks  the  continuity  of  the  journey.  In 
this  case  it  was  broken  by  repacking  and  blending  the  flour  upon 
the  pier.  Whether  mere  repacking  would  suffice  may  perhaps  be 
arguable,  although  the  packages  that  go  on  to  destination  are  not 
the  same  packages  that  are  landed  on  the  pier;  but  surely  the  flour 
after  blending  is  a  different  commodity.  It  is  blended  for  the  very 
purpose  of  making  something  different,  a  quality  that  is  or  is  sup- 
posed to  be  more  salable.  The  process  of  blending  is  no  doubt  differ- 
ent from  the  process  of  grinding  grain  into  flour,  but  in  each  case 
a  different  commodity  is  produced. 

This  view  is  sustained  by  the  decisions  of  the  United  States 
Supreme  Court.  In  General  Oil  Co.  v.  Crain,  209  U.  S.  211,  the 
oil  was  held  at  Memphis  for  the  purpose  of  putting  it  in  barrels 
for  further  transport.  It  was  held  that  it  was  subject  to  the  juris- 
diction of  Tennessee. 

The  taxes  are  affirmed,  with  costs. 


COE  V.  ERROL. 
Supreme  Court  of  the  United  States.     1886. 

[Reported  116  U.  S.  517.] 

Iw  September  1881,  Edward  S.  Coe  filed  a  petition  in  the  Su- 
preme Court  of  New  Hampsliire  for  the  county  of  Coos,  against  the 
town  of  Errol,  for  an  abatement  of  taxes,   and  therein,   amongst 


140  COE    V.    ERROL.  [CHAP.     II. 

otlier  things,  alleged  that  on  the  1st  of  April,  1880,  he  and  others, 
residents  of  Maine  and  Massachusetts,  owned  a  large  number  of 
spmce  logs  that  had  been  drawn  down  the  winter  before  from  Went- 
worth's  location,  in  New  Hampshire,  and  placed  in  Clear  Stream 
and  on  the  banks  thereof,  in  the  town  of  Errol,  county  of  Coos, 
New  Hampshire,  to  be  from  thence  floated  down  the  Androscoggin 
river  to  the  State  of  Maine  to  be  manufactured  and  sold;  and  that 
the  selectmen  of  said  Errol  for  that  year  appraised  said  logs  for 
taxation  at  the  price  $6,000,  and  assessed  thereon  State,  county, 
town,  and  school  taxes,  in  the  whole  to  the  amount  of  $120,  and 
highway  taxes  to  the  amount  of  $60.  A  further  allegation  made  the 
same  complaint  with  regard  to  a  lot  of  spruce  logs  belonging  to  Coe 
and  another  person,  which  had  been  cut  in  the  State  of  Maine,  and 
■were  on  their  way  of  being  floated  to  Lewiston,  Maine,  to  be  manu- 
factured, but  were  detained  in  the  town  of  Errol  by  low  water. 
Similar  allegations  were  made  with  regard  to  logs  cut  the  following 
year,  1880,  and  drawn  from  Wentworth's  location,  and  part  of  them 
deposited  on  lands  of  John  Akers,  and  part  on  land  of  George  C. 
Demerit!,  in  said  town  of  Errol,  to  be  from  thence  taken  to  the  State 
of  Maine;  and,  also,  with  regard  to  other  logs  cut  in  Maine  and 
floated  down  to  Errol  on  their  passage  to  Lewiston,  in  the  State 
of  Maine,  and  both  which  classes  of  logs  were  taxed  by  the  select- 
men of  Errol  in  the  year  1881.  The  petition  also  contained  the 
following  allegations,  to  wit : 

"  Said  Coe  further  says  that  said  logs  of  both  years,  so  in  the 
Androscoggin  river,  have  each  year  been  taxed  as  stock  in  trade  in 
said  Lewiston  to  said  Coe  and  Pingree,  and  said  Coe  claims  and 
represents  that  none  of  said  logs  were  subject  to  taxation  in  said 
Errol  for  the  reason  that  tliey  were  in  transit  to  market  from  one 
State  to  another,  and  also  because  they  had  all  been  in  other  ways 
taxed. 

"  That  said  Androscoggin  river,  from  its  source  to  the  outlet  of 
the  Umbagog  Lake  in  the  State  of  New  Hampshire,  through  said 
State  and  through  the  State  of  Maine  to  said  Lewiston,  is  now,  and 
for  a  long  time  has  been,  to  wit,  for  more  than  twenty  years  last 
past,  a  public  highway  for  the  floatage  of  timber  from  said  lakes 
and  rivers  in  Maine,  and  from  the  upper  waters  of  said  Androscog- 
gin river  and  its  tributaries  in  New  Hampshire  down  said  river  to 
said  Lewiston,  and  has  been  thus  used  by  the  petitioner  and  his 
associates  in  the  lumber  business  for  more  than  twenty  years  last 
past." 

Without  further  pleading,  the  parties  made  an  agreed  case,  the 
important  part  of  which  was  as  follows,  to  wit : 

"  It  is  agreed  that  the  facts  set  forth  in  the  petition  are  all  true 
except  what  is  stated  as  to  the  taxation  of  the  logs  as  stock  in  trade 
in  Lewiston,  Maine;  and  if  that  is  regarded  by  the  court  as  material, 
the  case  is  to  be  discharged  and  stand  for  trial  on  that  point.  It  is 
agreed  that  upon  this  petition  the  legality  of  the  taxation  is  in- 
tended to  be  brought  before  the  court  for  adjudication,  and  all  formal 
objections  to  the  proceedings  in  the  town  meeting,  &c.,  and  all  other 


SECT.    II.]  COE   V.    ERKOL.  141 

matters  of  form,  are  waived,  and  we  submit  the  matter  to  the  court 
for  a  legal  adjudication  as  to  whether  or  not  any  or  all  of  the  taxe3 
shall  be  abated. 

"And  it  is  agreed  that  for  many  years  the  petitioner  and  his 
associates  in  the  lumber  business  have  cut  large  quantities  of  timber 
on  their  lands  in  Maine  and  floated  them  down  the  said  lakes  and 
rivers  in  Maine  and  down  the  Androscoggin  river  to  the  mills  at 
said  Lewiston ;  and  timber  thus  cut  has  always  lain  over  one  season, 
being  about  a  year,  in  the  Androscoggin  river,  in  this  State,  either 
in  Errol,  Dummer,  or  Milan;  and  the  timber  referred  to  in  this 
petition  as  having  been  cut  in  Maine  had  lain  over  in  Errol  since 
the  spring  or  summer  before  the  taxation,  according  to  the  above 
custom." 

Upon  this  case  the  Supreme  Court  of  New  Hampshire,  in  Sep- 
tember term,  1882,  adjudged  as  follows,  to  wit:  "Now,  at  this  term, 
the  said  questions  of  law  having  been  fully  determined  in  said  law 
term,  and  an  order  made  that  that  portion  of  said  tax  assessed  upon 
the  logs  cut  as  aforesaid  in  said  State  of  Maine  be  abated,  and  that 
the  tax  assessed  upon  all  of  said  logs  cut  in  the  State  of  New  Hamp- 
shire be  sustained,  and  said  order  ha\ing  been  fully  made  known  to 
the  parties  of  this  case  and  become  a  part  of  the  record  thereof,  it  is 
therefore  ordered  and  decreed  by  the  court  that  there  be  judgment 
in  accordance  with  said  order  made  at  said  law  term,  without  costs 
to  either  party." 

The  petitioner  took  a  bill  of  exceptions,  setting  forth  the  agreed 
case,  and  stating,  amongst  other  things,  the  points  raised  on  the 
hearing  before  the  Supreme  Court  of  New  Hampshire,  and  the  de- 
cision of  that  court  thereon,  as  follows : 

"  On  said  hearing  the  petitioner  claimed  that  said  taxes  named 
in  the  petition  and  the  statutes  of  this  State,  under  the  provisions 
of  which  said  taxes  were  assessed,  were  illegal  and  void,  because 
said  taxes  were  assessed  in  violation  of,  and  said  statutes  of  this 
State  are  in  violation  of  and  repugnant  to,  the  general  provisions 
of  the  Constitution  of  the  United  States;  because  said  taxes  were 
assessed  in  violation  of,  and  said  statutes  of  this  State  are  in  viola- 
tion of  and  repugnant  to,  that  part  of  section  2,  art.  4,  of  the  Con- 
stitution of  the  United  States,  wliich  provides  that  ^  The  citizens  of 
each  State  shall  be  entitled  to  all  the  privileges  and  immunities  of 
citizens  of  the  several  States '  ;  because  said  taxes  were  assessed  in 
violation  of,  and  said  statutes  of  this  State  are  in  violation  of  and 
repugnant  to,  those  parts  of  sec.  8  of  art.  1  of  the  Constitution  of 
the  United  States  which  provide  that  'The  Congress  shall  have 
power  ...  to  regulate  commerce  vrith  foreign  nations,  and  among 
the  several  States,'  and  section  10  of  said  article  1,  which  provides 
that  'No  State  shall,  without  the  consent  of  Congress,  lay  anv  im- 
posts or  duties  on  imports  or  exports  except  what  may  be  absolutely 
necessary  for  executing  its  inspection  laws.' " 

Mr,  Justice  Bradley  delivered  the  opininn  of  the  court.     After 
stating  the  facts  in  the  language  above  reported  he  continued : 
The  case  is  now  before  us  for  consideration  upon  writ  of  error  to 


142  COE    V.    ERROL.  [CHAP.    II. 

the  Supreme  Court  of  ]Srew  Hampshire,  and  the  same  points  that  were 
urged  before  that  court  are  set  up  here  as  grounds  of  error. 

The  question  for  us  to  consider,  therefore,  is,  whether  tlie  products 
of  a  State  (in  this  case  timber  cut  in  its  forests)  are  liable  to  be 
taxed  Hke  other  property  witiiin  the  State,  though  intended  for  ex- 
portation to  another  State,  and  partially  prepared  for  that  purpose 
by  being  deposited  at  a  place  of  shipment,  such  products  being  owned 
by  persons  residing  in  another  State. 

We  have  no  ditticulty  in  disposing  of  the  last  condition  of  the 
question,  namely,  the  fact  (if  it  be  a  fact)  that  the  property  was 
owned  by  persons  residing  in  another  State;  for,  if  not  exempt  from 
taxation  for  other  reasons,  it  cannot  be  exempt  by  reason  of  being 
owned  by  non-residents  of  the  State.  We  take  it  to  be  a  point 
settled  beyond  all  contradiction  or  question,  that  a  State  has  juris- 
diction of  all  persons  and  things  within  its  territory  which  do  not 
belong  to  some  other  jurisdiction,  such  as  the  representatives  of 
foreign  governments,  with  their  houses  and  effects,  and  property 
belonging  to  or  in  the  use  of  the  government  of  the  United  States. 
If  the  owner  of  personal  property  within  a  State  resides  in  another 
State  which  taxes  him  for  that  property  as  part  of  his  general  estate 
attached  to  his  person,  this  action  of  the  latter  State  does  not  in 
the  least  affect  the  right  of  the  State  in  which  the  property  is  situ- 
ated to  tax  it  also.  It  is  hardly  necessary  to  cite  authorities  on  a 
point  so  elementary.  The  fact,  therefore,  that  the  owners  of  the 
logs  in  question  were  taxed  for  their  value  in  Maine  as  a  part  of 
their  general  stock  in  trade,  if  such  fact  were  proved,  could  have  no 
influence  in  the  decision  of  the  case,  and  may  be  laid  out  of  view. 

We  recur,  then,  to  a  consideration  of  the  question  freed  from  this 
limitation :  Are  the  products  of  a  State,  though  intended  for  ex- 
portation to  another  State,  and  partially  prepared  for  that  purpose 
by  being  deposited  at  a  place  or  port  of  shipment  within  the  State, 
liable  to  be  taxed  like  other  property  within  the  State  ? 

Do  the  owner's  state  of  mind  in  relation  to  the  goods,  that  is,  his 
intent  to  export  them,  and  his  partial  preparation  to  do  so,  exempt 
them  from  taxation?     This  is  the  precise  question  for  solution. 

This  question  does  not  present  the  predicament  of  goods  in  course 
of  transportation  through  a  State,  though  detained  for  a  time  within 
the  State  by  low  water  or  other  causes  of  delay,  as  was  the  case  of 
the  logs  cut  in  the  State  of  Maine,  the  tax  on  which  was  abated 
by  the  Supreme  Court  of  New  Hampshire.  Such  goods  are  already  in 
the  course  of  commercial  transportation,  and  are  clearly  under  the 
protection  of  the  Constitution.  And  so,  we  think,  would  the  goods 
in  question  be  when  actually  started  in  the  course  of  transportation 
to  another  State,  or  delivered  to  a  carrier  for  such  transportation. 
There  must  be  a  point  of  time  when  they  cease  to  be  governed  ex- 
clusively by  the  domestic  law  and  hesrin  to  be  governed  and  protected 
by  the  national  law  of  commercial  reirulation,  and  that  moment 
seems  to  us  to  be  a  legitimate  one  for  this  purpose,  in  which  they 
commence  their  final  movement  for  transportation  from  the  State  of 
their  origin  to  that  of  their  destination.     When  the  products  of  the 


SECT.   II.]  COE   V.   EEEOL.  143 

farm  or  the  forest  are  collected  and  brought  in  from  the  surround- 
ing country  to  a  town  or  station  serving  as  an  entrepot  lor  that  par- 
ticular region,  whether  on  a  river  or  a  line  of  railroad,  such  products 
are  not  yet  exports,  nor  are  they  in  process  of  exportation,  nor  is  ex- 
portation begun  until  they  are  committed  to  the  common  carrier 
for  transportation  out  of  the  State  to  the  State  of  their  destination, 
or  liave  started  on  their  ultimate  passage  to  that  State.  Until  then 
it  is  reasonable  to  regard  them  as  not  only  within  the  State  of  their 
origin,  but  as  a  part  of  the  general  mass  of  property  of  that  State, 
subject  to  its  jurisdiction,  and  liable  to  taxation  there,  if  not  taxed 
by  reason  of  tiieir  being  intended  for  exportation,  but  taxed  without 
any  discrimination,  in  the  usual  way  and  manner  in  which  such 
property  is  taxed  in  the  State. 

Of  course  they  cannot  be  taxed  as  exports;  that  is  to  say,  they  can- 
not be  taxed  by  reason  or  because  of  their  exportation  or  intended 
exportation;  for  that  would  amount  to  laying  a  duty  on  exports, 
and  would  be  a  plain  infraction  of  tiie  Constitution,  which  prohibits 
any  State,  without  the  consent  of  Congress,  from  laying  any  imposts 
or  duties  on  imports  or  exports ;  and,  although  it  has  been  decided, 
Woodruff  V.  Parham,  8  Wall.  123,  that  this  clause  relates  to  imports 
from,  and  exports  to,  foreign  countries,  yet  wdien  such  imposts  or 
duties  are  laid  on  imports  or  exports  from  one  State  to  another,  it 
cannot  be  doubted  that  such  an  imposition  would  be  a  regulation 
of  commerce  among  the  States,  and,  therefore,  void  as  an  invasion 
of  the  exclusive  power  of  Congress.  See  Walling  v.  Michigan,  ante, 
446,  decided  at  the  present  term,  and  cases  cited  in  the  opinion  in 
that  case.  But  if  such  goods  are  not  taxed  as  exports,  nor  by  reason 
of  their  exportation,  or  intended  exportation,  but  are  taxed  as  part 
of  the  general  mass  of  property  in  the  State,  at  the  regular  period 
of  assessment  for  such  property  and  in  the  usual  manner,  they  not 
being  in  course  of  transportation  at  the  time,  is  there  any  valid 
reason  why  they  should  not  be  taxed?  Though  intended  for  ex- 
portation, they  may  never  be  exported ;  the  owner  has  a  perfect  right 
to  change  his  mind ;  and  until  actually  put  in  motion,  for  some 
place  out  of  t'le  State,  or  committed  to  the  custody  of  a  carrier  for 
transportation  to  such  place,  why  may  they  not  be  regarded  as  still 
icinaining  a  part  of  the  general  mass  of  property  in  the  State? 
If  assessed  in  an  exceptional  time  or  manner,  because  of  their  an- 
ticipated departure,  thoy  might  well  be  considered  as  taxed  by  reason 
of  their  exportation  or  intended  exportation ;  but  if  assessed  in  the 
usual  way,  when  not  under  motion  or  shipment,  we  do  not  see  why 
the  assessment  may  not  be  valid  and  binding. 

The  point  of  time  when  State  jurisdiction  over  the  commodities 
of  commerce  begins  and  ends  is  not  an  easv  matter  to  designate  or 
define,  and  vet  it  is  hicrhlv  important,  both  to  the  shipper  and  to 
the  State,  that  it  should  be  clearly  defined  so  as  to  avoid  all  am- 
oioruity  or  question.  In  regard  to  imports  from  foreign  countries, 
it  was  settled  in  the  case  of  Brown  r.  Maryland,  12  WTieat.  419, 
that  the  State  cannot  impose  anv  tax  or  duty  on  such  goods  so  long 
as  they  remain  the  prnpertv  of  the  importer,  and  continue  in  the 


144  COE    V.   EREOL.  [cHAP.    H. 

original  form  or  packages  in  which  they  were  imported;  the  right 
to  sell  without  any  restriction  imposed  by  the  State  being  a  neces- 
sary incident  of  the  right  to  import  without  such  restriction.  This 
rule  was  deemed  to  be  the  necessary  result  of  the  prohibitory  clause  of 
the  Constitution,  which  declares  that  no  State  shall  lay  any  im- 
posts or  duties  on  imports  or  exports.  The  law  of  Maryland,  which 
was  held  to  be  repugnant  to  this  clause,  required  the  payment  of  a 
license  tax  by  all  importers  before  they  were  permitted  to  sell  their 
goods.  This  law  was  also  considered  to  be  an  infringement  of  the 
clause  which  gives  to  Congress  the  power  to  regulate  commerce. 
Tills  court,  as  before  stated,  has  since  held  that  goods  transported 
from  one  State  to  another  are  not  imports  or  exports  within  the 
meaning  of  the  proliibitory  clauses  before  referred  to;  and  it  has 
also  held  that  such  goods,  having  arrived  at  their  place  of  destina- 
tion, may  be  taxed  in  the  State  to  which  they  are  carried,  if  taxed 
in  the  same  manner  as  other  goods  are  taxed,  and  not  by  reason  of 
their  being  brought  into  the  State  from  another  State,  nor  sub- 
jected in  any  way  to  unfavorable  discrimination.  Woodruff  v, 
Parham,  8  Wall.  123;  Brown  v.  Houston,  114  U.  S.  623. 

But  no  definite  rule  has  been  adopted  with  regard  to  the  point  of 
time  at  which  the  taxing  power  of  the  State  ceases  as  to  goods  ex- 
ported to  a  foreign  country  or  to  another  State.  What  we  have  al- 
ready said,  however,  in  relation  to  the  products  of  a  State  intended 
for  exportation  to  another  State  will  indicate  the  view  which  seems 
to  us  the  sound  one  on  that  subject,  namely,  that  such  goods  do  not 
cease  to  be  part  of  the  general  mass  of  property  in  the  State,  subject, 
as  such,  to  its  jurisdiction,  and  to  taxation  in  the  usual  way,  until 
they  have  been  shipped,  or  entered  with  a  common  carrier  for  trans- 
portation to  another  State,  or  have  been  started  upon  such  transpor- 
tation in  a  continuous  route  or  journey.  We  think  that  this  must  be 
the  true  rule  on  the  subject.  It  seems  to  us  untenable  to  hold  that 
a  crop  or  a  herd  is  exempt  from  taxation  merely  because  it  is,  by 
its  owner,  intended  for  exportation.  If  such  were  the  rule  in 
many  States  there  would  be  nothing  but  the  lands  and  real 
estate  to  bear  the  taxes.  Some  of  the  Western  States  produce  very 
little  except  wheat  and  corn,  most  of  which  is  intended  for  export; 
and  so  of  cotton  in  the  Southern  States.  Certainly,  as  long  as  these 
products  are  on-the  lands  which  produce  them,  they  are  part  of  the 
general  property  of  the  State.  And  so  we  think  they  continue  to  be 
until  they  have  entered  upon  their  final  journey  for  leaving  the  State 
and  going  into  another  State.  It  is  true,  it  was  said  in  the  case  of 
The  Daniel  Ball,  10  Wall.  557,  565:  ""Whenever  a  commodity  has 
begun  to  move  as  an  article  of  trade  from  one  State  to  another,  com- 
merce in  that  commodity  between  the  States  has  commenced."  But 
this  movement  does  not  begin  until  the  articles  have  been  shipped 
or  started  for  transportation  from  the  one  State  to  the  other.  The 
carrying  of  them  in  carts  or  other  vehicles,  or  even  floating  them, 
to  the  depot  where  the  journey  is  to  commence  is  no  part  of  that 
journey.  That  is  all  preliminary  work,  performed  for  the  purpose 
of  putting  the  property  in  a  state  of  preparation  and  readiness  for 


SECT.    II.]  COE    V.    EKROL.  145 

transportation.  Until  actually  launched  on  its  way  to  another  State, 
or  committed  to  a  common  carrier  for  transportation  to  such  State, 
its  destination  is  not  iLxed  and  certain.  It  may  be  sold  or  otherwise 
disposed  of  within  the  State,  and  never  put  in  course  of  transporta- 
tion out  of  the  State.  Carrying  it  from  the  farm,  or  the  forest,  to 
the  depot,  is  only  an  interior  movement  of  the  property,  entirely 
within  the  State,  for  the  purpose,  it  is  true,  but  only  for  the  pur- 
pose, of  putting  it  into  a  course  of  exportation;  it  is  no  part  of  the 
exportation  itself.  Until  shipped  or  started  on  its  final  journey  out 
of  the  State  its  exportation  is  a  matter  altogether  in  fieri,  and  not  at 
all  a  fixed  and  certain  thing. 

The  application  of  these  principles  to  the  present  case  is  obnous. 
The  logs  which  were  taxed,  and  the  tax  on  which  was  not  abated  by 
the  Supreme  Court  of  New  Hampshire,  had  not,  when  so  taxed, 
been  shipped  or  started  on  their  final  voyage  or  journey  to  the  State 
of  ]\Iaine.  They  had  only  been  drawn  down  from  Wentworth's 
location  to  Errol,  the  place  from  which  they  were  to  be  transported 
to  Lewiston  in  the  State  of  Maine.  There  they  were  to  remain 
until  it  should  be  convenient  to  send  them  to  their  destination. 
They  come  precisely  within  the  character  of  propert}''  which,  accord- 
ing to  the  principles  herein  laid  down,  is  taxable.  But  granting  all 
this,  it  may  still  be  pertinently  asked,  IIow  can  property  thus  situ- 
ated, to  wit,  deposited  or  stored  at  the  place  of  entrepot  for  future 
exportation,  be  taxed  in  the  regular  way  as  part  of  the  property  of 
the  State  ?  The  answer  is  plain.  It  can  be  taxed  as  all  other  prop- 
erty is  taxed,  in  the  place  where  it  is  found,  if  taxed,  or  assessed  for 
taxation,  in  the  usual  manner  in  which  such  property  is  taxed;  and 
not  singled  out  to  be  assessed  by  itself  in  an  unusual  and  excep- 
tional manner  because  of  its  destination.  If  thus  taxed,  in  the  usual 
way  that  other  similar  property  is  taxed,  and  at  the  same  rate,  and 
subject  to  like  conditions  and  regulations,  the  tax  is  valid.  In  other 
words,  the  right  to  tax  the  property  being  founded  on  the  hj-pothesis 
that  it  is  still  a  part  of  the  general  mass  of  property  in  the  State,  it 
must  be  treated  in  all  respects  as  other  property  of  the  same  kind 
is  treated. 

These  conditions  we  understand  to  have  been  complied  with  in 
the  present  case.  At  all  events  there  is  no  evidence  to  show  that  the 
taxes  were  not  imposed  in  the  regular  and  ordinary  way.  As  the 
presumption,  so  far  as  mode  and  manner  are  concerned,  is  always 
in  favor  of,  and  not  against,  official  acts,  the  want  of  evidence  to  the 
contrary  must  be  regarded  as  e\"idence  in  favor  of  the  regularity  of 
the  assessment  in  this  case. 

The  judgment  of  the  Supreme  Court  of  New  Hampshire  is 

Affirmed. 


14G  BUKLIXGTOSr  LUMBER  CO.    V.   WILLETTS.  [CHAP.   II. 


BURLINGTON  LUMBER  CO.  v.  WILLETTS. 
Supreme  Court  of  Illinois.     1886. 

[Reported  118  III.  559.] 

Craig,  J.  This  was  a  bill  in  equity,  brought  by  the  Burlington 
Lumber  Company,  to  enjoin  the  collection  of  a  tax,  upon  an  assess- 
ment made  by  the  assessor  of  the  town  of  New  Boston,  in  Mercer 
County,  for  the  year  1885,  on  a  certain  quantity  of  logs  which  were 
in  the  New  Boston  harbor,  or  bayou,  on  the  1st  day  of  May,  1885. 

There  is  no  substantial  dispute  between  the  parties  in  regard  to 
the  facts.  The  Burlington  Lumber  Company  is  a  corporation  or- 
ganized under  the  laws  of  Iowa,  with  its  place  of  business  at  Bur- 
lington. The  corporation  is  engaged  in  the  business  of  manufactur- 
ing lumber.  It  buys  logs  in  Wisconsin  and  Minnesota,  where  they 
are  rafted,  and  towed  down  the  Mississippi  river  to  Burlington,  and 
there  sawed  into  lumber  at  the  mills  of  the  company.  In  the  Spring 
and  Summer  of  188-4,  the  company  purchased  logs,  which  were  rafted 
in  Boef  slough,  near  the  moutli  of  the  Chippewa  river,  in  Wisconsin. 
After  the  logs  were  rafted,  they  were  towed  down  the  river  by  a 
steamer.  The  vice-president  of  the  corporation,  on  cross-examina- 
tion, testified :  "  Some  of  the  logs  were  stopped  on  the  way.  We 
could  not  stow  all  we  bought,  at  or  near  Burlington,  but  it  was  more 
convenient  and  safer  to  leave  them  in  the  harbor  at  New  Boston. 
After  the  boats  were  started  with  the  rafts,  the  boat  would  be  in- 
structed to  leave  them  at  New  Boston  or  other  place,  and  there  they 
would  be  left  until  wanted.     The  first  raft  was  put  in,  October  3, 

1884.  That  was  there  in  May,  1885.  There  were  3,000,000  feet 
there  that  winter.     We  had  no  logs  at  Burlington   in  winter  of 

1885.  We  have  used  the  harbor  for  nine  years.  We  could  keep  logs 
there  safer  than  at  Burlington,  and  with  less  expense.  Corporation 
did  not  own  the  land.  It  leased  shore  privileges,  —  that  is,  we  pay 
something,  ratlier  than  have  bother  or  trouble,  to  those  who  own 
tlie  land,  same  as  if  we  used  a  wharf.  We  have  been  renting  shore 
privileges  several  years.  The  riglit  to  tie  rafts  on  his  shore  was 
rented  of  Prentiss.  The  corporation  had  E.  L.  Willits  employed  to 
look  after  logs,  and  see  that  none  got  away.  When  we  wanted  logs 
we  sent  after  them  by  steamer.  Willits  was  the  only  man  we  had 
employed  or  that  had  charge  of  them  there."  Edward  L.  Willits 
testified :  "  I  was  in  the  employ  of  the  Burlington  Lumber  Company 
in  the  fall,  winter  and  spring  of  1884  and  1885.  Was  employed 
by  the  month  to  keep  logs  afloat  and  see  tliat  none  got  away.  Got 
$rjO  per  month.  I  know  the  situation  of  the  logs  that  winter  and 
spring.  There  were  four  rafts,  and  about  750,000  feet  in  each." 
Cro:^s-examined :  "  I  have  been  employed  five  years  to  look  after  all 
rafts.  I  give  receipt  to  boat,  deliver  to  boat  and  take  receipt.  I 
have  control  while  there.  I  had  moved  them  across  slough  to  keep 
them  afloat.  The  Burlington  Lumber  Company  put  a  raft  in 
Sturgeon  bay  on  the  1st  of  May.     Part  of  it  is  there  yet." 


SECT.    II.]  BUEUNGTON   LUMBER    CO.    V.   WILLETTS.  147 

It  is  claimed  that  the  properly  in  question,  under  the  evidence, 
was  in  transitu,  and,  tlierei'ore,  not  taxable  in  this  State.  It  is  a 
plain  proposition,  that  property  in  course  of  transportation  from 
one  (State  to  another,  over  one  of  our  navigable  rivers,  or  over  any  of 
the  public  highways  of  the  country,  is  not  liable  to  taxation  as  it 
passes  over  such  highway,  by  the  State  authorities  ahuig  the  line 
of  such  highway,  and  we  think  it  is  equally  clear,  that  if  property, 
while  in  the  course  of  transportation  over  one  of  our  navigable  rivers, 
should  be  detained  by  low  water  or  ice,  or  other  cause,  it  would  not 
be  liable  to  be  taxed  by  the  authorities  where  the  detention  occurred. 
Any  other  rule  would  have  a  direct  tendency  to  obstruct  commerce 
between  States,  which,  of  course,  could  not  be  done  under  our  system 
of  laws.  But  the  question  here  presented  is,  whether  the  property, 
when  assessed,  was  in  course  of  -transportation  over  a  public  high- 
way. We  have  given  the  evidence  bearing  upon  this  point  that  con- 
sideration which  the  importance  of  the  question  demands,  and  we 
have  reached  the  conclusion  that  the  property  was  not  in  transitu. 
For  nine  years  the  coni])lainant  iuid  used  the  harbor  at  New  Boston 
as  a  place  of  safety  for  depositing  logs  during  the  winter.  Land 
along  the  shore  had  been  leased,  where  the  property  was  anchored, 
and  a  man  employed,  who  w^as  placed  in  the  possession  of  the  prop- 
erty. At  the  time  the  boats  started  from  Wisconsin  with  the  rafts, 
to  convey  them  down  the  river,  the  destination  of  the  property  had 
not  been  determined  by  the  company,  but  after  departure,  as  stated 
by  the  vice-president  in  his  evidence,  the  boats  were  then  instructed 
to  leave  a  part  of  the  rafts  at  New  Boston,  and  there  they  would 
remain  until  wanted  at  the  mill  in  Bu»lington,  when  a  steamer 
would  be  sent  for  them.  New  Boston  harbor,  or  Sturgeon  bay,  as  it 
is  usually  called,  is  only  about  thirty  miles  up  the  river  from  Bur- 
lington. It  is  very  accessible,  and  it  seems  plain  that  the  company 
had  selected  the  bay  as  a  place  of  storage  for  its  logs,  —  a  place 
where  its  property  could  be  shipped,  and  kept  in  safety  until  such 
time  as  it  was  needed  at  the  mills  in  Burlington.  Indeed,  for  all 
practical  purposes,  it  may  be  said  that  the  transit  of  the  property 
ended  at  New  Boston.  "When  the  logs  reat'hed  that  point,  they  were 
located  there  for  an  indefinite  time.  New  Boston  harbor  thus  be- 
came the  destination  of  the  property,  and  so  remained  until  such 
time  as  the  corporation  saw  proper  again  to  place  the  property  in 
transit.  No  other  reasonable  construction  can  be  placed  upon  the 
evidence. 

The  first  section  of  our  Revenue  law  provides,  that  all  real  and 
personal  property  in  this  State  shall  be  assessed  and  taxed,  except 
such  as  is  by  the  act  exempted.  Here  was  a  large  quantity  of  per- 
sonal property,  located  in  tliis  State  on  leased  premises,  in  the  hands 
of  an  agent  of  the  owner,  and  upon  what  principle  it  can  escape  taxa- 
tion is  not  apparent,  unless  the  plain  language  of  our  Revenue  law 
is  disregarded.  It  is  true,  that  the  owners  of  the  property  were  not 
manufacturing  the  logs  into  lumber  in  this  State,  or  engaged  in 
selling  the  lumber  here,  but  the  property  was  kept  at  New  Boston 
because  it  was  more  profitable  for  the  owners  to  keep  it  in  store 


lis  co:mmoxwealth  v.  amee.  dbedging  co.  [chap.  II. 

there  than  at  Burlington,  If  kept  at  the  mills  in  Burlington  it 
would  be  liable  to  loss  upon  the  breaking  up  of  the  ice  in  the  river, 
in  the  spring,  wMle  at  New  Boston  it  was  safe,  at  a  trifling  expense. 
The  property  was  therefore  kept  at  New  Boston  on  account  of  the 
profit  to  the  owners  to  keep  it  there.  The  company  made  money 
by  the  transaction.  Here  the  Burlington  Lumber  Company  had 
premises  leased,  large  amounts  of  valuable  property  placed  on  the 
leased  premises,  in  the  hands  of  hired  agents,  resulting  in  profit  to 
the  company,  and  yet  it  is  claimed  it  had  no  place  of  business  in 
this  State.  Tliis  claim  is  unreasonable.  We  think,  when  all  the 
circumstances  are  considered,  it  may  be  said  that  the  company  was 
engaged  in  a  business  here,  beneficial  to  itself.  If,  then,  the  com- 
pany had  this  property  located  in  our  State,  and  it  was  here  for 
profit,  and  it  was  so  located  as  to  claim  the  protection  of  our  laws, 
the  property,  in  our  opinion,  had  a  situs  here,  and  was  liable  to 
taxation. 

We  have  been  cited  to  the  late  case  of  Coe  v.  Town  of  Errol,  de- 
cided in  the  Supreme  Court  of  the  United  States,  as  having  an  im- 
portant bearing  on  the  question  involved.  We  have  examined  that 
case,  and,  as  we  understand  the  decision,  the  question  here  involved 
is  not  considered  or  decided  in  that  case.  The  point  there  decided, 
as  we  read  the  opinion  of  the  court,  is,  in  substance,  this :  In  order 
to  exempt  property  from  taxation  on  the  ground  that  it  is  in  course 
of  transportation,  the  property  must  be  actually  shipped,  —  that 
placing  it  together  for  shipment  is  not  sufficient. 

There  is,  however,  one  error  in  the  record.  The  taxes  which 
complainant  attempted  to  enjoin,  were,  in  part,  levied  by  the  in- 
corporated to-mi  of  New  Boston.  The  property,  however,  was  never 
within  the  incorporated  limits  of  New  Boston,  and  so  far  as  it  is 
concerned,  it  acquired  no  jurisdiction  over,  and  has  no  right  what- 
ever to  impose  a  tax  on,  the  property.  The  corporation  tax  was 
void,  because  New  Boston  had  no  riglit  to  assess  the  property,  and 
being  void,  the  complainants  had  a  clear  right  to  file  a  bill  to  enjoin 
this  part  of  the  tax. 

As  to  the  corporation  tax  of  New  Boston  the  decree  will  be  re- 
■  versed.     In  all  other  respects  it  will  be  affirmed,  and  the  costs  of 
this  court  will  be  equally  divided  between  the  parties. 

Decree  reversed  in  part  and  in  part  affirmed. 


COMMONWEALTH  v.  AMEEICAN  DREDGING  CO. 
Supreme  Court  of  Pennsylvania.     1888. 

[Reported  122  Pa.  386.] 

In  1887,  the  American  Dredging  Company  appealed  to  the  court 
below  from  the  settlement  by  the  auditor  general  and  state  treasurer, 
on  December  15,  1886,  of  taxes  claimed  to  be  due  on  its  capital 
stock,  under  the  act  of  June  7,  1879,  P.  L.  112.  The  objections 
filed  averred  that  a  tax  of  $1,485  was  charged  upon  property  of  the 


SECT.    II.]  COMMO^' WEALTH    V.    AMEK.    DREDGING    CO.  149 

company  which  liaJ  no  ailus  within  jurisdiction  of  the  common- 
wealth. 

At  the  trial  of  the  cause  which  was  without  a  jury,  under  the 
act  of  April  22,  18T4,  P.  L.  lO'J,  and  was  submitted  without  arfm- 
ment  and  without  points  presented  on  either  side,  the  court,  Mc- 
Pherson,  J.,  found  the  following  facts : 

1.  The  defendant  is  a  corporation  of  this  commonwealth,  char- 
tered by  the  act  of  April  9,  1867,  P.  L.  956,  with  power  "  to  o^vn, 
construct,  operate  and  dispose  of  dredging  machines,  steam  tugs, 
lighters,  machinery  and  appliances  for  improvement  of  harbor,  chan- 
nels, docks  and  water-courses,"  Under  this  act  and  a  supplement 
of  March  28,  1ST3,  P.  L.  446,  its  capital  stock  for  the  tax  year  end- 
ing the  first  ^Monday  of  November,  1886,  was  $495,000. 

2.  During  this  year  $232,803.22  of  its  capital  stock  was  invested 
in  land  and  buildings  situate  in  the  state  of  Xew  Jersey;  $92,000 
thereof  was  invested  in  four  dredges,  which  were  built  outside  of 
the  state  of  Pennsylvania,  three  of  which  have  never  been  within  the 
limits  of  the  state,  and  the  fourth  of  which  had  never  been  within  its 
limits  until  after  the  end  of  the  said  year;  $6,000  thereof  was  in- 
vested in  a  tug  which  was  built  outside  of  Pennsylvania,  and  was 
not  within  its  limits  during  the  said  year ;  and  $38,500  thereof  was 
invested  in  eleven  scows  which  were  built  outside  of  Pennsylvania, 
and  have  never  been  within  its  limits.  During  the  said  year,  the 
said  real  estate  and  other  property  were  all  employed  for  corporate 
purposes  in  the  states  of  New  Jersey,  Maryland  and  Virginia. 

3.  During  the  year  In  question,  the  defendant  declared  two 
dividends,  each  of  three  per  cent,  upon  $495,000,  and  this  settlement 
taxes  the  whole  capital  stock  under  the  act  of  1879,  section  4,  at  the 
rate  of  one  half  mill  for  each  one  per  cent  of  dividend. 

Upon  these  facts  the  conclusion  of  law  was  as  follows : 
It  has  been  decided  in  Commonwealth  v.  Pennsylvania  Coal  Com- 
pany, 5  Pa.  C.  C.  E.  90,  note,  that  so  much  of  the  tangible  property 
of  a  domestic  corporation  as  is  situate  in  other  states,  and  there 
employed  in  its  corporate  business,  is  not  taxable  by  this  common- 
wealth. We,  therefore,  hold  that  the  commonwealth  can  only  re- 
cover tax  upon  $125,696,78  of  the  defendant's  capital  stock.  The 
amount  due  is  as  follows : 

3  mills  upon  $125,696,78   $377  09 

Interest  from  February  13,  1887,  to  May  10,  1888  ,  ,         56  13 
Attorney  General's  commission 18  85 


$452  06 
For  which  sum  we  direct  judgment  to  be  entered  if  exceptions 
are  not  filed  according  to  law. 

To  this  decision,  the  commonwealth  filed  exceptions,  which  were 
overruled;  whereupon  the  commonwealth  took  this  writ. 

Paxson,  J,  The  court  below  correctly  held  that  the  defendant 
company  was  not  liable  to  taxation  upon  so  much  of  its  capital 
stock  as  was  represented  by  lands  and  buildings  situate  in  the  state 
of  New  Jersey;  but  we  are  of  opinion  that  the  learned  judge  erred 


150  NATIONAL    DIIEDGIXG    CO.     V.     STATE.  [cilAl*.    11. 

in  his  ruling  that  the  $92,000  of  said  stock  represented  by  the  four 
dredges,  the  tug-boat,  and  the  eleven  scows,  conceding  that  they, 
or  at  least  a  portion  of  them,  were  built  outside  of  this  state,  and 
have  never  been  within  it,  were  not  liable  to  taxation.  This  is  not 
because  of  the  technical  principle  that  t]ie  situs  of  personal  prop- 
erty is  -where  the  domicil  of  the  owner  is  found.  This  rule  is  doubt- 
less true  as  to  intangible  property  such  as  bonds,  mortgages,  and 
other  evidences  of  debt.  But  the  better  opinion  seems  to  be  that  it 
does  not  hold  in  the  case  of  visible  tangible  personal  property  per- 
manently located  in  another  state.  In  such  cases,  it  is  taxable  within 
the  jurisdiction  where  found  and  is  exempt  at  the  domicil  of  the 
owner.  Goods  and  chattels,  horses,  cattle,  and  other  movable  prop- 
erty of  a  visible  or  tangible  character  are  liable  to  taxation  in  the 
jurisdiction  of  the  state  wherein  the  same  are,  and  are  ordinarily 
kept,  irrespective  of  the  residence  or  domicil  of  the  owner.  Legal 
protection  and  taxation  are  reciprocal,  so  that  such  personal  prop- 
ertv  and  effects  of  a  corporeal  nature,  or  that  may  be  handled  and 
removed,  as  receive  the  protection  of  the  law  are  liable  to  be  taxed 
by  the  law  w^here  they  are  thus  protected:  Eorer  on  Interstate 
Law,  204,  and  cases  there  cited;  Potter  on  Corporations,  §§  189, 
190:  Pierce  on  Eailroads,  472.  No  fault  is  found  with  this  prin- 
ciple, but  does  it  apply  to  the  facts  of  this  case  ? 

It  must  be  conceded  that  the  property  in  question  must  be  liable 
to  taxation  in  some  jurisdiction.  It  it  were  permanently  located  in 
another  state,  it  would  be  liable  to  taxation  there.  But  the  facts 
show  that  it  is  not  permanently  located  out  of  the  state.  From  the 
nature  of  the  business,  it  is  in  one  place  to-day  and  in  another  to-mor- 
row, and,  hence,  not  taxable  in  the  jurisdiction  w4iere  temporarily 
employed.  It  follows  that  if  not  taxable  here,  it  escapes  altogether. 
The  rule  as  to  vessels  engaged  in  foreign  or  interstate  commerce  is 
that  their  situs  for  the  purpose  of  taxation  is  their  home  port  of 
registry,  or  the  residence  of  their  owner,  if  unregistered :  Pullman 
Palace  Car  Co.,  29  Fed.  Eep.  GC>;  Hays  v.  Pacific  Mm\  Steamsliip 
Co.,  17  How.  596.  These  vessels,  if  they  may  be  so  called,  were  not 
registered.  Hence,  their  situs  for  taxation  is  the  domicil  of  the 
owners.  This  rule  must  prevail  in  the  absence  of  anything  to  show 
that  they  are  so  permanently  located  in  another  state  as  to  be  liable 
to  taxation  under  the  laws  of  that  state. 

Judgment  reversed,  and  a  procedendo  awarded. 


NATIONAL  DREDGING  CO.  v.  STATE. 
Supreme  Court  of  Alabama.     1893. 

[Reported  99  Ala.  462.] 

McClellan,  J.  The  question  presented  on  this  record  is  whether 
certain  property  of  the  National  Dredging  Company  had  a  situs  in 
this  State  for  the  purposes  of  taxation  when  the  assessment  com- 
plained of  was  made  in  the  Spring  of  1891.  The  property  was 
brought  into  the  State  after  January  1st  of  that  year  and  before  the 


SECT,    n.]  NATIONAL  DREDGING    CO.    V.    STATE-  151 

assessor  had  completed  his  assessment,  and  lience  was  properly  as- 
sessed if  taxable  at  all  in  this  State  under  the  a^Tced  facts.  Codj, 
§  458.  Those  facts  are:  The  National  Dredging  L'oni])any  is  a  Del- 
aware corporation,  domiciled  at  Wilmington  in  that  Stale.  As  its 
name  indicates,  its  business  or  a  part  of  its  business,  is  the  operation 
"of  machines,  steam  tugs,  lighters,  machinery  and  appliances  for  the 
improvement  of  rivers,  harbors,  channels,  docks,  water  courses,  low 
lands,"  &c.  In  the  Fall  or  early  Winter  of  1890  it  entered  into  a 
contract  with  the  United  States  for  continuing  the  work  of  dredg- 
ing the  channel  of  Mobile  Bay,  entered  upon  the  execution  thereof 
early  in  1891,  and  from  that  time  on  down  to  the  time  of  the  trial 
of  this  cause  in  the  City  Court,  July  30,  1892,  has  been  and  was  at 
said  last  mentioned  date  still  engaged  therein.  The  property  found 
subject  to  taxation,  to  wit,  one  dredge  boat,  "  Forljcs,"  one  tug  boat, 
*'  Curtis,"  and  live  mud  scows,  and  brought  into  this  State  when  the 
performance  of  the  contract  was  entered  upon,  that  is,  in  Januar}' 
or  February,  1891,  and  had  remained  here  up  to  the  trial,  except 
some  portion  thereof,  not  specified,  which  was  removed  to  the  State 
of  Maine  in  March  or  February,  1892.  The  contract  with  the  Gov- 
ernment had  not  been  completed  on  July  30,  1892,  but  its  comple- 
tion would  "occur  shortly"  thereafter,  and  after  such  completion 
the  company  would  have  no  further  use  for  this  property  in  xVla- 
bama.  The  said  tug  boat,  dredge  and  scows  were  floating  property, 
capable  of  being  moved  from  port  to  port  —  the  tug  of  its  own 
motive  power,  and  the  dredge  and  scows  by  being  towed;  and  the 
tug  "Curtis"  is  registered  in  the  custom  house  at  Wilmington, 
Delaware.  It  is  clear  from  the  foregoing  epitome  of  the  facts  that 
all  of  this  property  was  at  the  time  of  the  assessment  being  used 
in  the  State  of  Alabama  in  tlie  prosecution  of  works  wholly  within 
the  State,  under  a  contract  which  involved  its  presence  here  in  that 
work  for  a  time,  the  duration  of  which  was  indefinite,  but  which 
extended  beyond  a  year  and  a  half,  and  the  end  of  which,  even  from 
the  standpoint  of  the  latter  date,  could  not  be  more  definitely  iixed 
than  as  "shortly  to  occur."  During  all  this  time  and  possibly  to 
the  present  moment  the  property  has  been  wholly  within  Alabama; 
engaged  in  a  business  or  being  used  in  a  work  which  did  not  involve 
its  passing  even  temporarily  beyond  the  limits  of  the  State.  More- 
over, it  has  all  along  been  used  and  possibly  is  even  now  being  used 
in  the  prosecution  of  this  work  precisely  as  property  belonging  to 
citizens  of  this  State  would  be  used  therein.  Indeed,  as  appears 
from  this  record,  other  property  of  the  same  kind,  which  had  pre- 
viously been  used  by  residents  of  Alabama  in  the  prosecution  of 
this  work,  was  purchased  by  the  appellant  company,  and,  being  in- 
corporated with  that  involved  here,  has  all  along  been  used  like  it  in 
dredging  the  channel  of  ^lobile  Bay,  and  one  scow  so  used  was  built 
in  the  city  of  ]\Iobile,  and  has  never  been,  we  assume,  outside  of  the 
State.  Again,  not  only  is  the  period  of  the  contract  in  the  execu- 
tion of  which  this  property  is  kept  in  the  State  indefinite,  and  hence 
the  duration  of  its  presence  here  in  the  execution  of  that  contract 
uncertain,  but  it  is  mnnife^t  iv(•>v^  tlie  n"-vood  facts  that  this  contract 


152  ]S'ATio:s'AL  dkedgi:?:Ct  co.  i".  state.  [chap.  ii. 

is  only  one  of  a  series  for  the  dredging  of  the  channel  in  Mobile  Bay, 
covering  years  before  and  after  the  year  1891.  Tliis  work  was  in 
the  line  of  the  dredging  corporation's  business,  it  had  secured  this 
contract  under  one  annual  congressional  appropriation  when  it  had 
to  bring  its  machinery  and  appliances  —  this  property  —  to  Mobile 
for  its  execution.  Having  it  there,  and  being  thus  in  a  more  ad- 
vantageous position  for  entering  into  another  contract  or  other  suc- 
cessive contracts  as  appropriations  are  made  by  Congress,  it  is  fair 
to  assume  that  the  Xational  Dredging  Company  will  enter  into 
other  contracts,  or  rather,  at  least,  that  its  purpose  and  intention 
is  to  do  so  if  favorable  terms  can  be  made.  These  considerations 
are  proper  in  arriving  at  the  situs  of  this  property.  They  go  to 
show,  by  reference  to  the  owner's  intention  as  fairly  inferable  from 
all  the  circumstances,  an  indefiniteness  as  to  the  period  of  the  pres- 
ence of  these  boats  and  scows  wholly  within  Alabama  beyond  that 
existing  as  to  the  duration  of  the  first  contract,  and  the  use  of  the 
property  here  in  performance  thereof.  In  other  words,  taking  into 
consideration  the  business  of  the  corporation,  the  amount  and  con- 
tinuing character  of  the  work  to  be  done  in  Mobile  Bay,  the  prep- 
arations made  by  the  company  for  doing  so  much  thereof  as  is 
authorized  under  one  annual  appropriation,  it  may  be  that  this 
property  will  be  for  years  engaged  vipon  this  work,  as  a  part  of  that 
now  being  used  by  the  company  of  like  kind  with  this  had  been  used 
thereon  for  a  year  or  years  prior  to  1891.     On  this  state  of  the  case 

—  or  even  leaving  out  of  view  the  considerations  last  adverted  to 

—  it  is  clear,  we  think,  that  this  property  is  not  merely  temporarily 
within  Alabama,  but  that,  to  the  contrary,  its  presence  here  is  for 
such  an  indefinite  period  as  involves  the  idea  of  permanency,  in  the 
sense  in  which  that  term  is  used  with  respect  to  the  situs  of  prop- 
erty for  the  purposes  of  taxation.  It  is  here  as  any  other  property 
is  or  would  be  here  in  use  upon  the  public  works  in  Mobile  Bay. 
Its  use  in  that  work  is  the  same  as  that  of  the  other  property  orig- 
inally embraced  in  this  assessment  and  formerly  owned  by  a  citizen 
of  Alabama  and  by  him  devoted  to  this  work  during  previous  years, 
the  same  as  that  of  the  scow  which  was  built  in  Mobile  for  this  work 
and  has  never  been  beyond  the  State,  and  the  same  as  that  of  an- 
other scow  built  outside  of  the  State  for  this  work.  All  this  other 
property  is  property  of  the  State  or  in  the  State  for  the  purposes 
of  taxation,  though  it  may  at  some  uncertain  future  time  cease  to 
be  property  taxable  here  in  consequence  of  its  removal  to  other  juris- 
dictions, as  the  property  in  controversy  may  sometimes  be  carried 
out  of  the  State.  Until  that  happens,  however,  both  classes  of  prop- 
erty enjoy  the  same  protection  of  our  laws,  both  classes  are  devoted 
to  the  same  use,  the  continuation  of  each  class  within  the  State  is 
alike  indefinite;  the  one  class  can  not,  in  short,  be  distinguished 
from  the  other  in  any  characteristic  which  is  of  importance  in  deter- 
mining the  question  of  taxability  vel  non.  And  hence  our  conclu- 
sion that  the  property  in  controversy  had  become  so  incorporated 
with,  and  a  part  of,  the  tangible  property  of  this  State,  for  revenue 
purposes,  as  that  its  taxable  situs  is  here,  notwithstanding  the  fact 


SECT.    II.]  NATIONAL    DREDGING    CO.    V.    STATE.  153 

that  the  domicil  of  its  owner  is  in  another  State.  Mayor  of  Mo- 
bile V.  Baldwin,  57  Ala.  61;  Boyd  v.  City  of  Selina,  96  Ala.  144; 
11  So.  Eep.  393;  Burroughs  on  Taxation,  pp.  40-1;  Trammell  v. 
Connor,  91  Ala.  398. 

There  is  nothing  in  the  nature  of  this  particular  property  to  take 
it  out  of  the  general  principle.  The  fact  that  it  is  floating  prop- 
erty and  may  be  moved  from  place  to  place  and  port  to  port  by 
water  furnishes  no  more  reason  for  exempting  it  from  taxation  here 
than  would  exist  for  the  exemption  of  property  which  did  not  float 
and  could  be  moved  from  place  to  place  only  overland. 

With  respect  to  the  tug  boat  "  Curtis,"  a  special  consideration  is 
advanced  in  support  of  its  non-taxability.  It  is  a  sea-going  vessel, 
propelled  by  steam,  and  is  entitled  to  registry  under  statutes  of 
the  United  States  at  tiie  port  of  its  owner's  domicil.  As  matter  of 
fact,  it  is  registered  at  the  custom  house  in  the  City  of  "Wilmington, 
Delaware.  On  this  the  contention  is  that  that  being  home,  it  can 
^  not  be  taxed  elsewhere.  There  are  many  cases  which  hold  that  such 
vessel,  engaged  in  commerce  between  its  home  port  and  others,  or 
even  wholly  between  other  ports  than  that  of  its  registry,  can  be 
taxed  only  at  the  port  of  registry.  It  is  not  our  purpose  to  question 
these  decisions;  it  is  not  necessary  that  we  should.  They  all  pro- 
ceed upon  the  theory  that  vessels  thus  engaged  are  never  in  foreign 
jurisdiction  except  temporarily,  and  as  an  incident  to  the  com- 
merce to  which  they  are  devoted,  and  hence  that  they  do  not  and 
can  not  acquire  a  situs  in  foreign  ports  for  the  purpose  of  taxation: 
they  do  not  become  incorporated  with  the  property  of  other  States 
and  countries  which  they  touch  intermittently,  are  never  indefinitely 
there,  and  their  business,  the  work  they  perform,  the  uses  to  which 
they  are  put,  is  not  done  and  performed  within,  and  are  not  local 
to,  the  foreign  State  or  couutrv.  These  considerations  can  have 
no  application  here.  The  tug  "  Curtis "  is  not  engaged  in 
commerce,  foreign  or  inter-state.  Its  business  is  wholly  within  Ala- 
bama. It  is  not  here  temporarily,  but  indefinitely.  It  is  as  much 
a  part  of  the  property  of  the  State  for  taxation  as  if  it  had  been 
chartered  for  an  indefinite  period  of  time  to  carry  freight  and  pas- 
sengers, or  tow  ships  over  the  waters  of  ]\Iobile  Bay  between  the  city 
and  Point  Clear,  or  as  if  its  owner  had  devoted  it  to  the  carrying 
trade  of  the  Alabama  Eiver;  and  surely  in  these  cases  it  could  not 
be  successfully  insisted  that  it  was  not  as  much  Alabama  property 
for  taxation  as  any  other  boat  devoted  exclusively  to  the  navigation 
of  the  water  courses  of  the  State.  The  question,  indeed,  is  at  last 
one  of  situs  in  fact,  and  where  this  is  shown  neither  foreign  registry 
nor  foreign  ownership  is  of  any  consequence. 

The  judgment  of  the  City  Court  is  affirmed. 


154  PBAIBIE  OIL,  AND  GAS  CO.  V.  EHBHAKIXr.  [CHAP.  II. 


[PKAIEIE  OIL  AND  GAS  CO.  v.  EHRHARDT. 
Supreme  Court  of  Illinois.     1910. 

[Reported  244  III.   634.] 

ViCKERS,  J.  On  March  17,  1908,  the  Prairie  Oil  and  Gas  Com- 
pany, a  corporation  organized  under  the  laws  of  Kansas,  filed  its  bill 
in  equity  in  the  Will  county  circuit  court  against  August  Ehrhardt, 
county  treasurer  and  collector,  praying  for  an  injunction  to  prevent 
the  collector  from  collecting  certain  taxes  levied  against  the  com- 
plainant upon  crude  oil  in  certain  tanks  and  pipe  lines  belonging 
to  the  complainant  and  located  in  Will  county.  Upon  a  hearing 
in  the  circuit  court  the  temporary  injunction  was  made  perpetual, 
and  from  a  decree  granting  the  relief  prayed  for,  the  collector  has 
appealed  to  this  court. 

The  bill  alleges,  and  the  evidence  sustains  the  allegations,  that 
appellee  is  an  incorporated  company  under  the  laws  of  Kansas  and 
owns  and  operates  a  pipe  line  extending  from  Humboldt,  Kansas, 
through  the  States  of  Missouri,  Iowa  and  Illinois,  and  extending 
to  Griffith,  Indiana,  through  which  crude  petroleum  is  transported, 
by  means  of  a  system  of  force  pumps  and  tanks,  from  one  end  of 
the  pipe  line  to  the  other;  that  the  company  has  a  large  number 
of  tanks   in  southeastern   Kansas  in  which  millions   of   barrels  of 
oil  are  stored;  that  some  of  this  oil  is  produced  by  wells  owned  by 
the  company,  but  most  of  it  is  purchased  from  owners  of  other  oil 
wells  in  southeastern  Kansas  and  in  Oklahoma  after  it  is  collected 
by  such  other  owners  in  tanks  at  their  wells  and  is  conveyed  through 
collecting  pipes  to  the  storage  tanks  in  Kansas.     The  oil  is  then 
conveyed  from  the   storage   station  in  Kansas  through  pipe   lines, 
as  above  described,  to  Griffith,  Indiana,  wdiere  it  is  delivered  to  an- 
other pipe  line  company,  which  transports  the  oil  east  through  the 
pipe  lines  of  the  latter  company.    The  pipes  through  which  the  oil  is 
transported  are  made  of  metal,  are  from  ten  to  twelve  inches  in  dia- 
meter and  are  two  and  somtimes  three  in  number,  laid  parallel  to 
each  other.     The  course  of  the  oil  across  this  State  is  slightly  up- 
grade, which  makes  it  necessary  to  force  the  oil  through  the  pipes 
by  a  system  of  force  pumps  distributed  along  the  line  about  forty- 
five  miles  apart.     There  are  two  or  three  pumps  installed  at  each 
pumping  station,  which  force  the  oil,  by  a  pressure  of  al)0ut  650 
pounds  to  the  square  inch,  to  the  next  station  east,  where,  in  turn, 
another  set  of  pumps  forces  it  onward  in  its  course  across  the  State. 
The  oil  travels  in  the  pipes  at  the  rate  of  about  three  miles  per  hour. 
There  is  a  pumping  station  at  Wilmington,  west  of  Griffith,  Indiana, 
and  the  next  pumping  station  southwest  of  Wilmington  is  at  Ker- 
nan,  in  LaSalle  county.     If  the  pnmps  at  each  station  did  exactly 
the  same  amount  of  work  they  would  keep  the  current  of  oil  mov- 
ing continuonsly  in  the  pipe  line.     It  is  expected  that  the  pumps 
will  work  continuously,  both  day  and  ni?ht.    In  the  practical  opera- 
tion of  the  pipe  line  it  is  fonnd  that  it  is  impossible  to  so  regulate  the 
several  pumps  along  the  line  that  each  will  do  the  same  amount  of 


SECT.   II.]  PBAIEIE   OIL   AND  GAS    CO.    V.    EilRHAIiDT.  155 

work  as  each  of  the  others.  Pumps  will  break  down,  get  out  of 
repair  and  have  to  be  stx)pped  uow  and  then,  which  would  result 
lu  au  iutenuptiou  of  the  How  of  oil  iu  the  pipes,  in  order  to  over- 
come the  dilliculties  from  the  irregularities  iu  the  movements  of 
the  pumps  two  tanks  are  establislied  at  each  pumping  station,  which 
are  connected  with  the  main  pipes  by  connecting  pipes  and  valves. 
The  object  of  these  tanks  is  tu  equalize  the  work  of  the  pumps. 
They  are  so  adjusted  that  an  excess  of  oil  coming  to  a  station  will 
be  forced  into  the  tanks,  and  a  shortage  in  the  supply  coming  to  a 
station  will  be  supplied  by  drawing  on  the  surplus  stored  at  such 
station  in  the  tanks.  By  maintaining  these  tanks  at  the  pumping 
stations  an  interruption  of  the  work  of  any  set  of  pumps  will  not 
interfere  with  the  work  of  any  other  pumps  on  the  line.  There  is 
usually  enough  oil  stored  in  the  tanks  at  each  station  to  keep  the 
pumps  going  for  twenty-four  hours  without  receiving  any  oil  from 
the  pipe  lines.  It  sometimes  liappens,  wlien  the  pumps  are  all 
working  along  the  line,  that  the  oil  in  the  tanks  will  not  be  increased 
or  diminished  for  several  days,  but  as  a  rule  the  oil  is  passing  into 
and  out  of  the  tanks,  more  or  less,  every  day.  There  is  thus  an 
almost  constant  flow  of  oil  through  the  tanks  as  well  as  through  the 
pipes.  The  taxes  which  are  souu^ht  to  be  enjoined  are  levied  upon 
the  oil  in  the  pipes  and  in  the  t;iiik«  flint  nro  located  in  AVill  county. 

There  is  no  question  of  fact  in  dispute  between  the  parties.  The 
only  question  is  the  liability  of  appellee  to  pay  taxes  upon  this  oil 
while  it  is  being  transported  across  Will  county  in  the  manner  above 
described. 

The  Revenue  law  of  this  State  provides  that  all  personal  prop- 
erty in  this  State  shall  be  assessed  and  taxed,  except  such  as  is 
specifically  exempt  from  taxation  by  the  statute.  While  there  is  no 
express  exemption  of  property  in  transit,  yet  it  has  been  held  by 
this  court  and  by  the  Supreme  Courts  of  other  States,  and  by  the 
Supreme  Court  of  the  United  States,  that  property  in  transit  which 
is  passing  through  a  taxing  district  is  not  liable  to  local  taxation. 
Irvin  V.  New  Orleans.  St.  Louis  anrl  Chicago  "Railroad  Co.  94  111. 
105;  Burlington  Lumber  Co.  v.  Willetts.  118  id.  559;  People  v. 
Bacon,  243  id.  313;  State  v.  Stevens,  146  Mo.  622:  Coe  v.  Errol, 
116  U  S.  517;  Kidd  v.  Pearson,  128  id.  1;  Kelly  v.  Rhoades,  188  id. 
1;  Calvert  on  Regulations  of  Commerce,  291. 

In  the  case  of  Kelly  v.  Rlioades,  snpra,  the  United  States  Su- 
preme Court  held  that  a  flock  of  sheep  which  were  being  driven 
on  foot  through  the  State  of  Wyoming  to  a  point  in  another  State 
were  not  subject  to  local  taxation,  notwithstanding  the  sheep  were 
permitted  to  graze  as  they  went  along,  travelinGr  at  the  rate  of  about 
nine  miles  per  dav.  This  case  answers  flip  appellant's  argument  that 
property  cannot  bo  in  transit  as  inter^tnto  commerce  unless  it  is 
in  charge  of  some  common  carrier  enjrafTed  in  that  class  of  business. 
The  oil  in  question  was  not  held  in  Will  countv  any  longer  than 
was  necessary  to  its  proper  transportation  by  the  means  provided 
by  appellee  for  that  pumose.  None  of  the  oil  was  sold  or  offered  for 
sale  while  passing  through  this  State.     It  is  manifest  that  the  only 


156  SEMPLE    V.    C0M:M0:N' WEALTH.  [chap.    II. 

purpose  that  appellee  sought  to  accomplish  was  to  transport  the  oil 
from  the  place  where  it  was  produced  to  other  points  in  a  foreign 
State,  where  it  would  be  refined  and  enter  thereafter  into  the  chan- 
nels of  trade.  The  oil  never  acquired  a  situs  in  this  State  so  that 
it  can  be  said  it  became  a  part  of  the  personal  property  of  districts 
tlirough  which  it  passed.  To  hold  that  this  oil,  either  in  the  tanks 
or  in  the  pipes,  was  subject  to  taxation  in  Will  county  would  au- 
thorize its  taxation  through  other  taxing  districts  through  which  it 
might  pass,  and  if  required  to  pay  taxes  in  every  State  or  county 
through  which  the  pipe  lines  extended,  it  would  amount  to  such 
a  burden  that  transportation  in  this  way  would  probably  have  to  be 
abandoned. 

This  oil,  while  on  its  way  from  one  State  to  a  point  in  another 
State,  is  a  subject  of  inter-state  commerce  and  is  therefore  exempt 
from  local  taxation.  To  so  contrue  our  Eevenue  law  as  to  include 
property  while  passing  through  the  State  as  iuter-state  commerce 
would  render  the  Eevenue  law  unconstitutional  under  the  commerce 
clause  of  the  Federal  constitution,  We  agree  with  the  learned  judge 
who  tried  this  cause  below,  that  "from  the  evidence  this  oil  is  an 
article  of  commerce  being  transported  from  Kansas  to  Indiana 
through  the  State  of  Illinois,  and  that  under  the  inter-state  com- 
merce clause  of  the  constitution  it  is  not  taxable  in  the  State  of 
Illinois." 

The  decree  of  the  circuit  court  of  Will  county  will  be  affirmed. 

Decree  affirmed. 


SEMPLE  V.  COMMONWEALTH. 
CouKT  OF  Appeals  of  Kentucky.     1918. 

[Reported  181  Ky.  675.] 

The  appellant  was  not  domiciled  in  Kentucky;  but  he  made  fre- 
quent visits  to  Louisville  on  business,  and  leased  an  apartment 
there,  which  he  furnished.  He  kept  an  automobile  there,  and  a 
bank  account,  not  used  in  his  business,  but  for  his  personal  expenses. 
A  revenue  agent  attempted,  under  provisions  of  section  4260  of  the 
Kentucky  Statutes,  in  the  county  court  of  Jefferson  county  to  have 
this  property  assessed  as  as  omitted  property;  and  the  court  ordered 
the  assessment.  On  appeal  to  the  Circuit  Court  the  judgment  was 
affirmed;  and  from  that  judgment  appellant  prosecutes  this  appeal.^ 

Thomas,  J.  ...  It  is  insisted,  however,  that  appellant's  small 
amount  of  furniture,  his  automobile  and  bank  account,  under  the 
provisions  of  section  4020  of  the  Kentucky  Statutes,  are  assessable  in 
Jefferson  count}'.  None  of  this  property,  however,  was  used  by  ap- 
pellant in  the  prosecution  or  conduct  of  any  business  in  which  he 
was  locally  engaged.  All  of  it  was  for  his  personal  convenience  and 
comfort  while  temporarily  sojourning  in  the  city  of  Louisville.    His 

'  This  short  statement  of  facts  is  substitiitocl  for  that  of  Thomas,  J. 


SECT.    II.]       PEOPLE,  &C.  V.   COMMISSIONERS  OF  TAXES.  157 

bank  account  is  shown  to  have  been  exclusively  for  his  personal  ex- 
penses. Under  such  circumstances  personal  property,  even  though 
it  be  tangible,  does  not  have  a  situs  for  taxation  at  the  place  where 
it  is  thus  temporarily  located. 

In  the  case  of  Commonwealth  of  Kentucky  v.  E.  G.  Dun  &  Co., 
126  Ky.  108,  in  constniing  section  4020  of  the  Kentucky  statutes, 
this  court  said : 

"  This  court,  however,  in  construing  this  statute,  has  determined 
that  it  does  not  apply  to  the  property  of  non-residents  when  in  this 
State  temporarily;  that  in  such  a  case  the  situs  for  the  purpose  of 
taxation  is  at  the  domicile  of  the  owner."  The  court  then  cites  the 
cases  of  Board  of  Councilmen  v.  Fidelity  Trust  &  Safety  Vault  Co., 
Ill  Ky.  667;  Callahan  v.  Singer  Manufacturing  Co.,  29  Ky.  Law 
Reporter,  123,  and  Commonwealth,  by,  &c.  v.  Ilaggin,  30  Kv.  Law 
Eep.  788. 

In  order  that  personal  property  may  have  a  situs  for  taxation 
in  a  locality  different  from  the  domicile  of  its  owner,  such  personal 
property  must  be  permanently  located  at  the  place  where  it  is  sought 
to  be  taxed.  No  temporary  location  will  alter  its  situs  for  taxation 
at  a  place  other  than  the  residence  of  its  owner.  Cases,  supra,  and 
Union  Eefrigerator  Transit  Co.  v.  Kentucky,  199  U.  S.  194. 

We  therefore  conclude  that  the  court  was  in  error  in  assessing 
any  of  the  property  for  either  of  the  years  mentioned,  and  its  judg- 
ment in  doing  so  must  be  and  it  is  reversed. 


PEOPLE  ex  rel.  THE  PARKER  MILLS  v.  COMMISSIOXERS 

OF  TAXES. 

Court  of  Appeals  of  New  York.     1861. 

[Reported  23  .A'.  Y.  242.] 

Appeal  from  the  Supreme  Court.  Certiorari,  under  section  20 
of  the  act  of  1859  in  relation  to  the  assessment  and  taxation  of 
property  in  the  city  of  New  York,  to  review  the  proceedings  of  the 
commissioners  of  taxes  and  assessments  in  imposing  a  personal  tax 
upon  the  relator.  From  the  commissioners'  return  it  appeared  that 
the  relator  is  a  foreign  corporation,  manufacturing  nails  in  the 
States  of  Massachusetts  and  Rhode  Island.  It  had  a  depot  and 
agent  in  the  city  of  New  York,  to  whom  it  transmitted  nails  for  sale. 
Its  only  business  within  this  State  consisted  in  making  such  sales, 
the  proceeds  of  which  were  remitted  at  once  to  the  corporation  in 
Massachusetts ;  and  where  sales  were  upon  credit,  the  securities 
received  were  sent  to  the  corporation  for  collection.  It  appeared 
by  the  testimony  of  the  agent  that  the  annual  sales  amounted  to 
about  $300,000, 'and  that  the  value  of  the  nails  which  he  then  had 
in  store  was  $10,000.  The  commissioners,  upon  these  facts,  held 
that  the  corporation  "was  conducting  business  in  the  city  of  New 
York,  and  that  the  amount  or  sum  invested  in  said  business  by  it 
was  $10,000."     They  assessed  the  corporation  at  that  amount,  and 


158  PEOPLE^  &C.    v.   COMMISSIONERS  OF  TAXES.  [ciIAP.   II. 

imposed  a  tax  of  $179.21.  The  Supreme  Court,  at  general  term 
in  the  first  distriet,  alfirmed  the  proceedings,  and  an  appeal  was 
thereupon  brought  to  tliis  court. 

Seldex,  J.  This  case  depends  upon  the  construction  to  be 
given  to  the  act  of  February  2?,  1855,  amendatory  of  the  several  acts 
for  the  assessment  and  collection  of  taxes  in  this  State.  Section  1 
of  that  act  is  as  follows:  "All  persons  and  associations  doing  busi- 
ness, in  the  State  of  iiew  York,  as  merchants,  bankers,  or  otherwise, 
either  as  principals  or  partners,  whether  special  or  otherwise,  and 
not  residents  of  tliis  State,  shall  be  assessed  and  taxed  on  all  sums 
invested  in  any  manner  in  said  business,  the  same  as  if  they  were 
residents  of  this  State;  and  said  taxes  shall  be  collected  from  the 
property  of  the  firms,  persons,  and  associations,  to  which  they  sever- 
ally belong." 

I  have  no  doubt,  and  shall  therefore  assume,  that  the  words, 
"  persons  and  associations,"  used  in  this  statute,  should  be  construed 
to  include  corporations.  But  the  words  descriptive  of  the  property 
in  respect  to  which  they  are  to  be  assessed,  are  among  the  most  in- 
definite in  the  language.  The  word  "  business "  embraces  every- 
thing about  which  a  person  can  be  employed;  and  a  sum  is  "in- 
vested "  whenever  its  amount  is  represented  by  anything  but  money. 
No  conclusion  can  be  arrived  at  in  this  case,  by  following  out  the 
precise  lexicographical  meaning  of  these  terms.  The  statute  is  to 
be  interpreted,  therefore,  by  the  light  to  be  obtained  from  its  general 
scope  and  tenor:  from  other  statutes  in  pari  materia:  and  from  a 
consideration  of  the  evils  and  abuses  at  which  it  was  aimed. 

It  was  not  uncommon,  previous  to  the  passage  of  the  act,  as  the 
history  of  our  legislation  shows,  for  foreign  corporations,  partic- 
ularly insurance  companies,  to  establish  agencies  in  the  city  of  New 
York,  and  perhaps  elsewhere  in  this  State,  for  the  transaction  of 
their  corporate  business.  These  agencies  were  protected  by  our 
laws  and  carried  on  a  profitable  business  within  this  State,  and  yet 
contributed  nothing  towards  the  expenses  of  government.  They 
came  in  direct  competition  with  domestic  corporations,  which  were 
heavily  taxed.  It  was  certainly  just  and  right  that  they,  or  the 
corporations  by  which  they  were  established,  should  be  made  to  con- 
tribute, to  some  extent,  to  the  public  burdens.  But  there  was  also 
another  class  of  cases  which  called  for  special  legislation,  and  which 
the  legislature  probably  had  more  directly  in  view  in  passing  the 
act  of  1855.  Many  persons,  engaged  in  business  in  the  city  of  New 
York  as  partners  of  commercial  firms  or  otherwise,  resided  in  New 
Jersey,  Connecticut,  or  elsewhere  out  of  this  State.  These  persons 
frequently  had  large  amounts  of  property  in  this  State,  and  enjoyed 
the  fruits  of  a  profitable  business  carried  on  under  the  protection 
of  our  laws :  and  yet,  by  reason  of  the  rule  that  personal  property  is 
deemed  to  follow  the  person  of  the  o^\^le^,  they  escaped  taxation  in 
respect  to  this  property,  at  least  in  this  State,  and  probably  in  most 
cases  altogether. 

There  is  no  doubt  that,  to  provide  for  these  two  classes  of  cases, 
especially  the  last,  was  the  main  object  of  the  act  of  1855.    That  it 


SECT.   11.]  PEOPLE,  JcC.    V.    COMMiiiSlONKliS  OF    TAXLS.  I.j9 

was  never  intended  to  include  a  case  like  the  present,  seems  to  me 
clear.  In  the  two  classes  of  cases  referred  to,  the  investment  of 
funds  by  the  non-residents  has  more  or  less  of  permanency.  It  is 
not  tiie  mere  transit  cjf  property  through  the  tState  lor  the  purposes 
of  a  market,  but  the  funds  are  used  for  tlie  prosecution  of  continuous 
business.  Taxes  are  levied,  for  the  most  part,  annually.  Thev  are 
the  consideration  wliicli  property  holders  pay  for  the  protection 
which  the  government  and  laws  ailord  to  them  and  their  property 
for  the  year.  But,  if  the  commissioners  in  this  case  are  right,  if  the 
property  is  caught  within  this  State  for  a  single  dav  ''wh'ile  the 
assessors  are  engaged  in  the  performance  of  their  duties,  its  owners 
may  be  as  heavily  taxed  as  if  it  had  been  here  tiiroughout  the  entire 
year. 

It  is  difficult  to  see  any  difference  in  principle  between  the  present 
case  and  that  of  a  drover  who  transports  his  herds  of  cattle  bv  rail- 
road to  the  city  of  ^ew  York  for  sale ;  and  yet,  1  apprehend,  no  one 
ever  supposed  the  owner  of  the  cattle,  if  a  non-resident,  to  be  taxable 
in  such  a  case.  It  may  be  said  that  the  Parker  Mills  had  a  store  and 
an  agent  in  the  city  of  New  York.  So  the  drover  may  have  his  field 
or  his  yard  for  keeping  his  cattle,  and  his  herdsman  to  take  care  of 
them.  The  cases  are,  I  think,  parallel;  and  the  reason  why  the 
statute  does  not  apply  to  either  is,  that  there  is  no  sum  invested  or 
used  for  the  purpose  of  carrying  on  a  continuous  business  in  this 
State. 

That  it  never  was  the  policy  of  the  State  to  impose  taxes  upon 
property  sent  into  the  State  for  the  mere  purpose  of  sale,  is  shown 
by  the  course  of  legislation  on  this  subject.  The  general  tax  law 
provides  (1  R.  S.  389,  §  5)  that  every  person  shall  be  assessed  in 
the  town  or  ward  where  he  resides,  for  all  personal  estate  owned  by 
him,  "including  all  such  personal  estate  in  his  possession,  or  under 
his  control  as  trustee,  guardian,  executor,"  &c.  By  the  amendatory 
act  of  April  15,  1851  (Sess.  Laws,  1851,  ch.  176),  agents  are  added 
to  the  class  of  persons  named  in  the  previous  statute;  but  lest  the 
clause,  with  this  addition,  should  be  construed  more  broadly  than 
the  legislature  intended,  it  was  further  provided  that  "the  products 
of  any  State  of  the  United  States,  consigned  to  agents  in  any  town 
or  ward  in  this  State  for  sale  on  commission  for  the  benefit  of  the 
owner  thereof,  shall  not  he  assessed  to  such  agents." 

The  present  case  does  not  come  strictly  within  the  terms  of  this 
exception.  The  word  "prodncts,"  as  here  used,  means,  as  T  suppose, 
the  natural  agricultural  products  of  the  country.  But  I  can  see  no 
distinction  in  principle  between  the  present  case  and  the  case  ex- 
cepted. In  both,  the  commoditv  is  produced  and  owned  in  other 
States,  and  is  brought  temporarily  into  this  State  for  the  mere  pur- 
poses of  a  market.  Every  reason  which  would  lead  to  exemption 
from  taxation  in  one  case,  applies,  as  T  conceive,  equally  to  the  other. 
The  exception  is  to  he  considered  rather  as  indicative  of  the  scope 
intended  to  he  given  to  the  principal  clause,  than  as  founded  upon 
any  reasons  specially  applicable  to  the  natural  products  of  tlie  coun- 
try as  distinct  from  other  property.    It  is  a  case  to  which  the  maxim. 


160  TOWX  OF  ALBEETVILLE  V.   IIOOPEB.  [CHAP.   II. 

expressio  unius  exclusio  est  alterius,  does  not  apply.  The  exception 
was  undoubtedly  inserted,  from  abundant  caution,  to  prevent  a 
misconstruction  of  the  previous  clause,  authorizing  the  taxation  of 
trustees  and  agents  for  the  property  in  their  hands;  and  not  be- 
cause the  legislature  intended  to  discriminate  between  the  products 
of  agricultural  and  other  kinds  of  labor.  It  shows  that  it  was  no 
part  of  the  policy  of  the  legislature,  when  that  act  was  passed,  to 
compel  the  citizens  of  other  States  to  contribute  to  the  support  of 
our  government  simply  because  they  send  a  portion  of  the  products 
of  their  industry  to  this  State  to  be  sold.  It  is  clear,  therefore,  that 
the  property  of  the  relators  could  not  have  been  taxed  to  their  agent 
under  the  law  of  1851 ;  and  I  see  no  reason  to  suppose  that  it  was  in- 
tended, by  the  law  of  1855,  to  adopt  a  different  policy  in  respect  to 
property  so  situated.  My  conclusion,  therefore,  is,  that  the  judg- 
ment of  the  Supreme  Court  should  be  reversed,  and  that  the  pro- 
ceedings should  be  remitted,  with  instructions  to  cause  the  names 
of  the  relator  to  be  erased  from  the  assessment  roll,  and  the  corre- 
sponding tax  to  be  canceled. 
All  the  judges  concurring. 

Ordered  accordingly. 


SECTION  III. 

ASSESSMENT. 


TOWN  OF  ALBEETVILLE  v.  HOOPEE. 

SUPKEME   COUKT  OF  ALABAMA.      1916. 
[Reported  196  Ala.  642.] 

The  action  is  by  a  citizen  of  the  town  of  Albertville  to  recover  a 
sum  of  money  paid  by  him  through  his  agent  as  purchase  money  for 
certain  chattels  sold  by  defendant  municipality  under  a  general  ex- 
ecution against  plaintiff  for  the  satisfaction  of  an  alleged  judgment 
for  municipal  taxes  on  his  personal  property  subject  to  taxation  in 
said  town.  The  execution  was  regular  on  its  face,  and  was  issued 
under  the  authority  of  the  town  counsel  regularly  expressed.  The 
assessment  upon  which  it  was  founded  is  shown  to  have  been  in  the 
following  form :  In  the  first  column  of  the  assessment  book,  against 
plaintiff's  name,  items  of  real  estate  appear.  In  another  column, 
headed  "Total  Value  of  E.  E.,"  appears  in  black  ink  the  amount 
$6,700,  and  in  red  ink  the  amount  $66,678.  There  is  no  column 
showing  personal  property  assessed,  nor  is  there  any  reference  to 
personal  propert}'.  In  the  final  column,  headed  "  Total  Taxes," 
appears  the  entry  "  33.50  E.  est.,"  and  under  it  the  entry,  "  $333.29, 
P.  P."  The  compiler  of  the  separate  book  explains  that  the  figures 
in  red  ink  related  to  personal  property. 

SoMERViLLE,  J.  (1-3.)  An  execution  issued  by  tlie  town  clerk 
under  section  1313  of  the  Code,  for  the  collection  of  delinquent 


SECT.    III.]  TOWN    OF    ALBERTVILLE    V.    HOOPER.  IGl 

taxes,  is  manifestly  a  complete  nullity  unless  there  has  been  a  writ- 
ten assessment  of  the  defendant's  property. 

"The  term  (assessment)  commonly  includes  two  distinct  pro- 
cesses: First,  the  preparation  of  a  list  by  the  proper  officers,  com- 
prising a  description  of  all  the  persons  or  property  found  within  the 
jurisdiction,  and  liable  to  contribute  to  the  particular  tax;  and, 
second,  an  estimate  by  the  assessors  of  tlie  value  of  the  property, 
of  whatever  character  it  may  be,  which  is  to  be  called  on  to  con- 
tribute, thus  forming  the  basis  of  an  apportionment  of  the  whole  tax 
among  the  taxable  persons  within  the  district.  The  list,  when  thus 
completed,  is  usually  denominated  the  'tax  list'  or  'assessment  roll."* 
Black  on  Tax  Titles  (2d  Ed.)  §  89. 

"The  assessment  is  an  indispensable  prerequisite  to  the  validity 
of  a  tax  against  any  individual,  for  without  a  valid  assessment 
there  can  be  no  lawful  attempt  to  collect  the  tax  or  to  enforce  it 
against  any  specific  property.  Mere  irregularities  in  the  assessment 
will  not  affect  its  validity,  but  only  such  omissions  or  defects  as 
go  to  the  jurisdiction  of  the  assessors,  or  deprive  the  taxpayer  of 
some  substantial  right."     37  Cyc.  98Tb. 

(4.)  In  the  instant  case  nothing  had  been  done  by  the  munici- 
pality which  can,  even  by  the  most  liberal  courtesy,  be  designated  as 
an  assessment  of  the  plaintiff's  personal  property.  The  required 
assessment  is  not  merely  irregular  or  defective;  it  is  simply  non- 
existent. For,  certainly,  the  simple  entry  of  the  total  amount  com- 
puted as  a  personal  property  tax  is  not  an  assessment,  without  some 
sort  of  listing  of  the  property  itself. 

Again,  the  assessment  sale  must  be  made  by  the  city  clerk  or  some 
person  authorized  by  the  town  council.  This  assessment  roll  was  not 
made  by  an  authorized  person,  and  apparently  he  merely  copied  the 
total  assessed  value  of  personalty  from  the  county  assessment  book 
for  the  preceding  year,  without  any  reference  to  the  items  or  the 
mass  of  property  to  be  taxed;  in  short,  it  does  not  appear  from  the 
book  that  plaintiff  owned  any  personal  property  whatever.  Hence 
jurisdiction  of  the  personalty  was  never  acquired  by  the  municipality. 

Our  judgment  is  that  the  assessment  was  a  legal  nullity;  that 
there  was  nothing  to  support  the  execution  under  which  plaintiff's 
property  was  seized;  and  that  the  sale  of  it  was  a  sheer  conversion 
by  the  municipality,  without  any  authority  of  law. 

(5.)  In  such  cases  it  is  well  settled  that  the  owner  may  waive 
the  tort,  ratify  the  sale,  and  recover  the  purchase  monev  received  by 
the  tort-feasor.  Lewis  v.  Dubose,  39  Ala.  219,  220";  Blackshear 
I'.  Burke.  74  Ala.  239;  4  Cyc.  332  (111). 

There  is  no  escape  from  the  conclusion  tliat  plaintiff  was  entitled 
to  recover  the  amount  awarded  by  the  verdict,  and  the  jury  were 
properly  instructed  to  so  find.  .  .  . 

Affirmed. 


102  STATE    V.    CUDAIIY    PACKING    CO.  [ciIAP.    II. 

STATE  V.  CUDAHY  PACKING  CO. 

SUPEEME   COUIIT   OF   MINNESOTA.       1908. 
[Reported    103    Minn.    419.] 

Jaggaed.  J.  The  trial  court  foiiiul  that :  The  personal  prop- 
erty of  the  defendant  was  valued  at  $10,400  by  the  assessor  of  the  city 
of  Minneapolis.  Thereafter  the  city  board  of  equalization  increased 
that  assessment  $10,000.  Thereafter  the  State  board  of  equaliza- 
tion further  increased  the  assessment  by  $6,630.  The  resulting  tax 
$810.90  was  justly  and  properly  levied.  Judgment  was  accordingly 
entered  for  the  tax,  together  with  the  penalty.  This  appeal  was 
taken  from  the  judgment.  Defendant  expressly  admits:  "In  fact 
[it J  had  personal  property  consisting  of  cash,  book  accounts,  and 
stock  of  all  kinds,  including  the  soap  in  storage,  of  the  cash  value 
of  $37,903.77.''    The  entire  assessment  was  $37,030. 

1.  The  defendant  insists  that  the  court  will  take  judicial  notice 
that  property  in  this  State  is  not  assessed  for  its  actual  cash  value; 
that  the  assessor  assessed  other  personal  property  at  fifty  per  cent,  in 
pursuance  of  the  instructions  contained  in  the  circular  issued  by  the 
State  auditor;  and  that,  inasmuch  as  the  defendant  was  assessed 
for  approximately  the  full  value  of  its  property,  it  had  been  dis- 
criminated against.  There  is  obviously  no  merit  in  this  contention. 
The  statutes  of  this  State  distinctly  provide  that  "all  property  shall 
be  assessed  at  its  true  and  full  value  in  money."  Section  810,  E.  L. 
1905.  Neither  the  State  auditor  nor  the  courts  have  the  power 
to  repeal  or  amend  this  clear  and  positive  requirement. 

2.  Defendant  also  insists  that  the  Minneapolis  board  of  equaliza- 
tion had  no  power  to  make  an  original  assessment,  as  it  undertook 
to  do  in  this  case.  The  increase  was  in  pursuance  of  the  following 
resolution  of  the  city  board:  "On  motion,  ...  a  raise  of  $10,000 
was  ordered  assessed  against  the  Cudahy  Packing  Company  for 
goods  in  storage."  The  board  of  equalization  by  the  charter  (1)  is 
given  power  to  revise,  amend,  and  equalize  the  assessment  on  the 
roll  of  the  city  assessor,  and  "  (2)  is  vested  with  all  the  powers  which 
are  or  may  be  vested  in  the  county  boards  of  equalization  under  the 
general  laws  of  the  State  so  far  as  applicable,  but  shall  not  be  re- 
stricted by  any  limitation  as  in  respect  to  reducing  the  aggregate 
sum  of  real  or  personal  property  as  returned  by  the  city  assessor." 
County  boards  of  equalization  have  not  the  power  to  make  an  orig- 
inal assessment.  State  v.  Crookston  Lumber  Co.,  85  Minn.  405, 
89  N.  W.  173.  It  is  quite  clear,  however,  that  under  the  provision 
granting  the  power  to  revise,  amend,  and  equalize  the  assessment 
the  city  board  has  power  to  amend  by  adding  taxable  property  not 
included  in  the  assessor's  list. 

3.  Defendant  also  argues  that  the  action  of  the  Minneapolis 
board  of  equalization,  and  of  the  State  board  of  equalization,  also, 
in  increasing  the  assessment,  was  invalid,  because  in  both  cases  notice 
required  by  law  to  be  given  in  such  cases  was  not  given.  The  argn- 


SECT,    lil.]  STATE    V.    CLDAllY    I'ACKI^'G    CO.  103 

ment  is  not  teral)le.  The  proceedings  to  collect  taxes  in  this  State 
arc  judicial.  Ulluial  macliinorv  is  provided  for  the  creation  of  a 
just  demand  on  the  part  of  the  Slate  to  be  paid  by  certain  individuals 
or  out  of  certain  property.  Op])ortunity  is  given  for  an  objecting 
property  owner  to  appear  in  court  and  to  interpose  any  objection 
he  may  have,  including  that  of  unfair  or  unequal  valuation,  \\ith 
respect  to  the  collection  of  personal  property  taxes,  one  opportunity 
is  certainly  given  to  appear  and  defend  in  court.  Section  889,  K.  L. 
1905.  If  this  opportunity  be  not  embraced,  a  further  opportunity 
may  be  aH'orded.  Section  893,  Id.  The  statutory  provisions  which 
are  intended  to  guide  the  conduct  of  officers  in  the  transaction  of 
public  business,  so  as  to  insure  the  orderly  and  prompt  performance 
of  public  duties,  and  which  pertain  merely  to  the  system  and  dis- 
patch of  proceedings,  are  construed  as  directory.  The  provisions 
which  affect  the  subsequent  collection  of  the  tax,  and  which  are  in- 
tended for  the  protection  of  the  citizen  by  preventing  the  sacrifice 
of  his  property,  and  by  the  disregard  of  which  his  rights  might  be 
affected,  are  construed  as  mandatorv.  Kipp  v.  Dawson,  31  Minn. 
373,  17  N.  W.  961,  18  N.  W.  9r/,  Faribault  Waterworks  Co.  v. 
County  of  Eice,  44  ]\rinn.  12,  46  N".  AV.  143. 

Under  the  judicial  system,  the  equalization  proceedings  are  de- 
signed merely  to  produce  a  just  demand.  Subsequent  opportunity 
to  defend  against  that  demand  on  the  ground  of  unfair  or  unequal 
valuation  is  allowed.  Under  the  summary  system,  the  means  by 
which  the  taxpayer  secures  his  day  in  court  is  often  by  appeal  or 
resort  to  other  remedy  pending  or  following  the  action  of  the  boards 
of  equalization.  In  this  State,  accordingly,  provisions  relating  to 
equalization  are  generally  construed  as  directory,  not  mandatory. 
Failure  to  give  notice,  imdor  the  judicial  system,  becomes  clearly 
material  only  w^hen  it  is  sought  to  bring  the  person  or  property 
into  court.  The  mere  failure  of  the  assessor  to  notify  the  property 
owner  and  require  him  to  list  or  return  his  taxable  property  (State 
V.  Wm.  Deering  &  Co.,  56  Minn.  24,  57  N.  W.  313),  or  the  failure 
to  give  notice  of  hearing  of  boards  of  equalization  (State  v.  Ilynes, 
82  Minn.  34,  84  N.  AV.  636),  does  not  invalidate  the  assessment, 
in  whole  or  in  part.  Indeed,  the  omission  of  equalization  not  re- 
sulting in  unfair  or  unequal  assessment  is  not  a  basis  of  objection 
in  proceedings  to  collect.  Scott  Co.  v.  Hinds,  50  Minn.  204,  52 
N".  ^Y.  523. 

It  was  said  in  State  v.  District  Court  of  Eed  Lake  Co.,  83  Minn. 
169,  85  N.  W.  1135 :  "It  was  immaterial  that  the  various  boards  of 
review  refused  to  reduce  the  amount  of  the  assessment  and  that  re- 
lators had  no  notice  thereof.  There  was  essentially  only  one  ques- 
tion for  the  court  to  pass  upon  ;  and  that  was,  what  was  the  assessable 
value  of  the  property  at  the  time  the  tax  was  levied?"  In  State  v. 
Backus-Brooks  Co.,  102  Minn.  50,  112  N.  W.  863,  it  was  said:  "  The 
defendant,  having  failed  to  show  that  any  irregularity  or  omission 
on  the  part  of  the  State  board  of  equalization  or  its  secretary  re- 
sulted in  any  prejudice  to  it,  or  that  the  taxes  a,s  levied  against  it 
were  unequal  or  unfair,  or  based  upon  property  it  did  not  own,  or 


164  STATE   I'.    CrDAHY   PACKIXG   CO.  [ciIAP.   II. 

that  its  property  was  assessed  proportionately  higher  than  other 
property  of  the  same  chiss,  the  del'endant  failed  to  establish  any 
defense." 

It  follows  that  the  failure  of  boards  of  equalization  in  this  case 
to  give  notice  is  a  mere  irregularity,  of  which  defendant  cannot 
complain  unless  the  tax  sought  to  be  collected  was  unfairly  and  un- 
equally assessed.  Section  919,  1\.  L.  1905.  This  defendant  has 
not  shown. 

Our  attention  has  been  called  to  Eavmond  v.  Chicago  Union 
Traction  Co.,  207  U.  S.  20,  21,  28  Sup.'  Ct.  7,  52  L.  Ed.  15.  In 
that  case  the  corporation  had  paid  the  full  amount  of  its  taxes,  based 
upon  the  same  rate  as  that  paid  upon  otber  property  of  the  same 
class.  A  federal  court  of  equity  restrained  the  collection  of  the 
illegal  excess  resulting  from  the  discrimination  of  a  board  of 
equalization,  whose  decisions  were  conclusive,  except  as  proceedings 
for  relief  may  be  taken  in  courts.  In  the  case  at  bar  the  action  of 
the  officials  did  not  result  in  an  illegal  discrimination.  This  de- 
fendant is  in  no  position  to  complain  of  the  application  of  a  tax 
rate  universal  throughout  the  State  to  his  tangible  property  only 
at  a  valuation  admittedly  less  than  the  law  required.  This,  in  an- 
other sense,  is,  for  aught  that  appears  in  this  record,  a  smaller  tax 
than  the  defendant  was  legally  subject  to  (State  v.  Western  Union 
Tel.  Co.,  96  Minn.  13,  104  N.  W.  567),  and  less  than  was  imposed 
by  law  upon  domestic  corporations  (section  838,  E.  L.  1905),  because 
the  tax  on  their  shares  of  stock  includes,  in  effect,  the  valuation  of 
both  tangible  and  intangible  property  as  united  in  use. 

Affirmed. 

On  April  10,  1908,  the  following  opinion  was  filed. 

Jaggaed^  J.  On  petition  for  rehearing,  defendant  urges  that  the 
decision  previously  rendered  in  this  case  violates  article  4,  §  2,  of  the 
constitution  of  the  United  States,  by  denying  to  the  defendant,  a 
citizen  of  Illinois,  the  privileges  and  immunities  of  a  citizen  of 
Minnesota,  and  also  violates  article  14,  §  1,  of  the  amendments  to 
said  constitution,  by  depriving  the  defendant  of  its  property  without 
due  process  of  law,  and  by  denying  the  defendant  the  equal  protec- 
tion of  the  laws.  The  questions  thus  involved  have  been  fully  pre- 
sented to  and  considered  by  this  court.  In  so  far  as  the  petition 
for  reargument  is  addressed  to  the  interpretation  by  this  court  of  the 
power  of  the  Minneapolis  board  of  equalization  and  its  power  to 
assess  property  not  on  the  assessment  Toll,  there  appears  to  be  no 
occasion  for  further  discussion.  The  gist  of  the  remaining  argument 
is  (1)  that  the  action  of  the  board  of  equalization  is  illegal  and 
inequitable,  for  it  discriminates  against  this  defendant  by  making 
him  bear  a  greater  burden  of  taxes  proportionately  than  other  tax- 
payers in  this  State;  (2)  that  it  practically  denies  defendant  a 
hearing  on  the  question  of  whether  this  assessment  should  be  raised 
or  not,  by  failing  to  give  him  due  notice  of  its  action. 

1.  It  does  not  appear  in  this  record  that  this  defendant  has  been 
discriminated  against.  It  is  true  that  the  State  auditor  directed 
an  original  assessment  of  fifty  per  cent,  of  the  value  of  real  and 


SECT.    III.]  STATE    i'.    CUDAHY   TACKIXG    CO.  165 

personal  property,  and  that  the  city  assessor  testified  that  the  as- 
sessment in  Hennepin  county  was  made  on  that  basis  as  ordered. 
It  might  also  be  assumed,  although  it  was  not  proved,  that  the 
assessors  of  other  counties  assessed  in  fact  according  to  the  same 
rule.  The  conclusion  that  in  consequence  there  had  been  a  "sys- 
tematic, intentional,  and  illegal  undervaluation  of  other  property 
by  the  taxing  otiicials"  of  the  State  does  not  at  all  follow.  This 
order  of  the  State  auditor  might  appear  to  be  in  contradiction  to 
the  express  statutory  requirement  that  property  should  be  assessed 
at  its  full  value  in  money.  As  a  matter  of  fact,  on  the  contrary, 
however,  it  Avas  designed  and  conduces  to  make  possible  literal 
obedience  to  the  statute. 

The  result  of  the  assessors'  labors  is  not  the  final  listing  or  valua- 
tion of  property,  real  or  personal.  It  is  merely  a  step  to  that  result. 
After  the  assessor  has  made  the  survey,  his  list  and  valuation,  the 
county  auditor  corrects  the  verified  result  of  his  labors,  as  by  addi- 
tion of  omitted  property  (section  853,  R.  L.  1905),  and  various 
boards  of  equalization  complete  the  work  of  creating  a  tax,  con- 
forming to  statute,  thereafter  to  be  collected.  More  specifically,  the 
State  board  of  equalization  is  charged  with  the  duty  of  equalizing  the 
taxes  between  the  various  counties.  A  horizontal  increase  of  a 
given  percentage,  covering  all  property  of  a  specified  kind  assessed 
within  a  named  county  may  be,  and  often  has  been,  ordered.  If 
such  an  increase  were  made,  then  property  which  had  been  returned 
by  the  assessor  at  its  full  valuation  would  ultimately  bear  a  tax  on  , 
one  hundred  per  cent,  plus  the  percentage  of  increase  imposed  by 
the  State  board.  In  consequence,  either  a  grave  practical  injustice 
would  result  in  the  collection  of  the  excessive  tax,  or  the  courts  of 
the  State  would  be  overwhelmed  with  the  hearings  of  alleged  over- 
valuations. There  would  be  imposed  on  the  overtaxed  individual 
the  unnecessary  and  improper  trouble  and  expense  of  appearing  in 
court  and  defending.  Inter  alia,  to  give  opportunity  to  the  stat- 
utory boards  of  equalization  to  perform  their  functions,  the  instruc- 
tion of  the  State  auditor  to  assess  at  fifty  per  cent  of  the  value  of 
the  property  was  issued.  The  result  of  general  obedience  to  the 
State  auditor's  order  is  a  presumptively  uniform  valuation  —  an 
even  basis  for  an  ultimately  correct  tax  list.  The  essential  question 
to  the  taxpayer  is  whether,  as  a  consequence  of  the  work  in  the  first 
place  of  the  assessor  and  in  the  second  place  of  the  county  auditor 
and  of  the  boards  of  equalization,  he  is  called  upon  to  pay  a  tax  on 
a  larger  valuation  than  the  law  authorizes.  The  tax  is  not  unequal, 
and  he  has  suffered  no  prejudice,  as  these  terras  are  employed  in 
the  law.  The  immediate  case  itself  is  a  good  illustration.  Defend- 
ant's original  assessment  was  in  fact  less  than  fifty  per  cent  of  the 
total  valuation,  which  he  admits;  albeit  accidentally.  Two  boards 
of  equalization  added  enough  to  make  his  final  assessment  conform 
to  the  law.    He  has  no  cause  for  complaint. 

It  is  urged  that  the  court  will  take  judicial  notice  of  the  fact  that 
"it  is  the  practice  of  assessing  officials  to  (ultimately)  return  as- 
sessable property  for  taxation  at  one-half  the  cash  value  thereof." 


166  STATE    V.    CUDAIIY    PACKING    CO.  [ciIAP.    II. 

Unfortunately  courts  must  take  judicial  notice  of  the  fact  that  the 
ultimate  assessment  of  real  and  personal  property  is  extremely  un- 
even and  erratic,  and  that  no  certain  percentage  of  actual  value  is  at- 
tained. Large  amounts  of  property,  aggregating  enormous  values, 
are  assessed  for  more  than  their  market  value.  Smaller  amounts 
are  taxed  for  a  fraction  of  their  real  value  not  susceptible  of  definite 
estimate.  The  cases  presented  to  the  courts  of  this  State  tend  to 
show  that,  for  example,  personal  property  in  the  rural  districts  is 
taxed  on  a  higher  average  than  personal  property  in  large  cities,  and 
tliat  real  estate  in  large  cities  is  taxed  at  a  much  higher  valuation  than 
in  rural  districts,  and  often  for  much  more  than  its  actual  value. 
To  a  large  extent  tliese  inequalities  are  inevitable.  To  exactly  what 
extent,  however,  this  condition  exists,  is  a  matter  of  controversy 
and  conjecture.  No  definite  Icnowledge  on  the  subject  exists,  and 
no  proof  has  here  been  adduced.  We  think  no  adequate  proof  could 
be  practically  produced. 

It  is  elementary  that,  while  a  tax  law  must  aim  at  equality,  ap- 
proximation to  equality  is  all  that  can  be  had.  Cooley,  Taxn.  (1st 
Ed.)  127;  Davis  v.  City,  55  Iowa,  549,  8  N".  W.  423.  Absolute 
equality  is  not  possible.  "  If  equality  were  practicable,"  said  Chief 
Justice  Gibson  in  Kirby  v.  Shaw,  19  Pa.  St.  258,  261,  "in  what 
branch  of  the  government  would  power  to  enforce  it  reside?  Not 
in  the  judiciary,  unless  it  were  competent  to  set  aside  a  law  free 
from  collision  with  the  constitution,  because  it  seemed  unjust.  It 
could  interpose  only  by  overstepping  the  limits  of  its  sphere,  by 
arrogating  to  itself  a  power  beyond  its  province,  by  producing  intestine 
discord,  and  by  setting  an  example  which  other  organs  of  the  govern- 
ment might  not  be  slow  to  follow.  It  is  its  peculiar  duty  to  keep 
the  first  lines  of  the  constitution  clear,  and  to  stretch  its  power  in 
order  to  correct  legislative  or  executive  abuses.  Every  branch  of 
the  government,  the  judiciary  included,  does  injustice  for  which 
there  is  no  remedy,  because  everything  human  is  imperfect.  The 
sum  of  the  matter  is  that  the  taxing  power  must  be  left  to  that 
part  of  the  government  which  is  to  exercise  it."  The  courts  will  not 
substitute  their  judgment  as  to  valuation  for  that  of  the  board  of 
equalization.  State  Kailroad  Tax  Cases,  92  U.  S.  575,  23  L.  Ed. 
663.  The  local  assessment  cases  recently  decided  by  the  supreme 
court  of  the  United  States  emphasize  the  extent  to  which  the  taxing 
power  is  legislative  and  executive  in  character,  and  how  limited  is  the 
function  of  courts  to  interfere  with  its  exercise,  in  a  particular  case. 
See,  for  example,  French  v.  Barber  Asphalt  Paving  Co.,  181  U.  S. 
324,  21  Sup.  Ct.  625,  45  L.  Ed.  879.  And  see  Meriwether  v.  Garrett, 
102  U.  S.  472,  26  L.  Ed.  197. 

The  certain  purpose  of  the  law  of  this  State  requiring  a  full 
valuation  to  produce  equality  is  evident  in  the  intention  of  the  very 
instruction  of  the  State  auditor  to  which  objection  has  been  so  stren- 
uously urged  here.  The  result  of  the  operations  of  the  official  bodies 
here  was  a  tax  at  a  rate  applying  uniformly  throughout  the  State 
on  a  valuation  admittedly  less  than  the  taxable  property  defendant 
owned.     It  is  entirely  clear  that  in  this  case  no  attempt  whatever 


SECT.  III.]        PEOPLE  V.  KEOKUK  AND  HAMILTON  BRIDGE  CO.       1G7 

■was  made  to  discriminate  between  different  classes  of  property 
owners.  The  same  rule  applied  indillerently  to  residents  and  non- 
residents. 

2.  Defendant  was  not  denied  a  hearing,  within  the  meaning 
of  the  State  and  federal  constitutions.  It  is  the  lawmaking  power, 
and  not  the  judiciary,  which  is  to  determine  all  questions  of  discre- 
tion or  policy  in  ordering  or  imposing  taxes,  and  which  must  make 
all  necessary  ndes  and  regulations  and  decide  upon  the  agencies 
by  means  of  which  a  tax  shall  be  created  and  collected.  Mr.  Justice 
Shiras,  in  Thomas  v.  Gay,  16!)  U.  S.  :.^64,  18  Sup.  Ct.  340,  42  L. 
Ed.  740.  It  was  not  necessary  that  the  board  of  e(iualization  should 
have  given  notice  of  its  increase.  State  llailroad  Tax  Cases,  supra. 
It  is  unnecessary,  however,  to  discuss  the  extent  to  which  such  no- 
tice is  necessary,  l)ecause  the  property  owner  had  the  right  to  appear 
before  the  boards  of  equalization  at  definitely  stated  times,  and  was 
given  certain  opportunity  to  appear  in  court  and  defend.  Section 
889,  R.  L.  1905.  Indeed,  it  is  natural  to  inquire,  how  did  the  defend- 
ant raise  the  objections  now  under  consideration?  The  answer  is 
clear:  By  embracing  the  opportunity  alforded  by  statute  to  come 
into  court  and  interpose  the  very  defense  which  the  demonstrated  in- 
genuity of  counsel  has  formulated.  Moreover,  the  taxpayers'  remedy 
of  paying  under  protest  the  tax  claimed  to  be  unjust  or  illegal,  and 
of  bringing  an  action  for  the  recovery  of  the  sum,  is  preserved  by 
statute.  Section  891.  "What  more  [opportunity]  ought  to  be 
given?"  Mr.  Justice  Pcckham,  in  Security  Trust  &  Safetv  Vault 
Co.  V.  City  of  Lexington,  203  U.  S.  323,  at  page  333,  27  Sup.  Ct. 
87,  at  page  90,  51  L.  Ed.  204.  Cf.  Central  of"  Georgia  Ev.  Co.  v. 
Wright,  207  U.  S.  127,  28  Sup.  Ct.  47,  52  L.  Ed.  47. 

We  conclude:  No  taxpayer  can  successfully  base  a  defense  to  a 
proper  tax  upon  a  charge  of  general  official  derelictions  unproven 
and  conjectural.  The  courts  will  not  require  that  assessments  be 
made  in  violation  of  law,  will  not  impose  the  duty  of  committing 
perjury  on  tax  officers,  and  will  not  pervert  their  own  functions 
by  repealing  a  just  and  valid  statute,  which  requires  an  assessment 
of  all  taxable  property  at  its  full  value  in  money,  by  making  the 
enforcement  of  that  statute  impossible. 

Petition  for  reargument  denied. 


PEOPLE  V.  KEOKUK  AND  HAMILTON  BRIDGE  CO. 
Supreme  Court  of  Illinois.     1919. 

IReported  287  III.  246.] 

Cartwright,  J.  The  county  collector  of  Hancock  County  ap- 
plied to  the  county  court  for  a  judgment  against  a  strip  of  land 
eight  feet  wide,  described  as  commencing  at  a  stated  point  and  con- 
tinuing along  the  center  line  of  the  bridge  of  the  appellant,  the 
Keokuk  and  Hamilton  Bridge  Company,  1567  feet  to  the  State 
line  between  this  State  and  Iowa,  including  the  slopes,  walls  and 


168       PEOPLE   i.  KEOKUK  A]S'D  HAMIETOX  EKIDGE  CO.        [cHAP.   II. 

embankments,  for  $3469.87  delinquent  taxes  of  the  year  1917  and 
for  an  order  of  sale  to  satisfy  the  same.  The  appellant  filed  numer- 
ous objections  to  the  application,  which  in  substance  were : 

(1)  That  the  Keokuk  and  Hamilton  Bondholders'  Company,  a 
corporation,  owned  mortgage  bonds  of  the  appellant  which  were  long 
eince  in  arrears  and  far  exceeded  the  value  of  the  property,  and 
therefore  the  bondholders'  company  was  the  real  owner  of  the  bridge 
property. 

(2)  That  the  appellant  was  a  railroad  company  and  its  property 
was  a  railroad,  which  could  only  be  assessed  by  the  State  Board  of 
Equalization. 

(3)  That  the  bridge  formed  a  link  in  connection  with  various 
railroads,  making  a  complete  line  of  railroad  from  points  in  this 
State  to  points  and  connections  with  other  railroads  in  the  State  of 
Iowa  and  was  used  in  inter-State  commerce,  and  if  sold  for  taxes 
the  means  of  inter-State  commerce  would  be  interfered  with  and 
destroyed. 

(4)  That  the  United  States,  as  a  war  measure,  had  taken  charge 
of  the  property  and  was  operating  it,  and  a  proceeding  to  sell  the 
bridge  would  deprive  the  United  States  of  such  control  and  deprive 
the  United  States  and  appellant  of  property  without  due  process  of 
law.  ■■ 

(5)  That  the  property  was  arbitrarily,  knowingly  and  fraudu- 
lently assessed  at  its  full  market  or  cash  value  while  all  other 
property  was  assessed  by  a  rule  and  long  custom  at  about  forty  per 
cent  of  its  cash  value  and  the  assessment  was  approved  by  the  board 
of  review. 

The  court,  on  motion  of  the  appellee,  struck  the  objections  from 
the  files  and  rendered  judgment  and  order  of  sale  for  the  taxes. 
From  that  judgment  and  order  this  appeal  was  prosecuted. 

A  motion  to  strike  objections  from  the  files  is  in  the  nature  of  a 
demurrer  and  necessarily  admits  every  fact  alleged  in  the  objections 
and  the  legal  conclusions  arising  therefrom,  and  they  can  be  stricken 
from  the  files  only  in  a  case  where  no  legal  objection  is  stated  and 
where  no  proof  of  the  facts  alleged  would  constitute  a  defense  to 
the  application  nor  justify  a  refusal  of  judgment.  If  any  objection 
states  a  legal  ground  of  defense  it  is  error  for  the  court  to  strike  it 
from  the  files  and  refuse  to  the  taxpayer  a  hearing  and  an  oppor- 
tunity to  prove  the  fact  alleged.  Proof  that  the  appellant  was  in- 
debted and  had  issued  mortgage  bonds  which  were  in  arrears  and 
exceeded  the  value  of  the  property  and  were  held  by  a  bondholders' 
company  did  not  make  the  bondholders  owners  of  the  property  or 
exempt  the  property  from  taxation  in  the  name  of  the  appellant. 

The  objections  stated  that  the  appellant  was  a  corporation  formed 
by  a  consolidation  of  the  Hancock  County  Bridge  Company,  a 
corporation  of  this  State,  and  an  Iowa  corporation,  and  that  it  con- 
structed the  bridge  in  1869  under  an  act  of  Congress.  The  only 
property  it  claimed  to  own  was  a  bridge  across  the  Mississippi  river 
between  the  cities  of  Hamilton  and  Keokuk,  which  was  used  by 
various  railroad  companies  operating  railroads  extending  eastward 
and  westward  from  the  bridge,  and  there  was  no  allegation  that  the 


SECT.  III.]        PEOPLE  V.  KEOKUK  AND  HAMILTON  BlilDGE  CO.       1C9 

bridge  was  a  part  of  any  railroad  or  railroad  system  owned  by  the 
appellant.  The  bridge  therefore  was  not  a  railroad  and  was  law- 
fully assessed  by  the  local  assessor  as  real  estate  and  was  not  to  be 
assessed  by  the  State  Board  of  Equalization  as  railroad  track. 

The  fact  that  property  is  used  in  iuter-State  commerce  does  not 
exempt  it  from  taxation.  Inter-State  commerce  is  not  taxed  by  tax- 
ing property  devoted  to  such  a  use.  Keokuk  and  Hamilton  Bridge 
Co.  V.  Illinois,  175  U.  S.  626. 

The  fact  that  by  the  act  of  Congress  of  March  21,  11)18,  and  the 
President's  proclamation  under  the  same,  railroads  have  been  taken 
cliarge  of  by  the  United  States  and  are  being  operated  and  con- 
trolled by  the  government  is  not  a  defense  against  the  payment  of 
local  taxes  on  the  property.  Whether  or  not  that  act  applies  to  the 
appellant's  bridge,  which  is  not  a  railroad,  any  question  of  taxation 
could  only  arise,  in  any  event,  between  the  Federal  government  and 
the  State. 

There  was  a  legal  objection  to  the  amount  of  the  tax,  which  the 
appellant  had  a  right  to  prove,  and  the  court  erred  in  striking  it 
from  the  files.  That  objection  was  that  the  property  was  arbitrarily, 
knowingly  and  fraudulently  assessed  at  its  full  market  or  cash  value 
while  all' other  property  was  arbitrarily  and  knowingly  assessed  at 
about  forty  per  cent  of  such  value  in  accordance  with  an  established 
rule  and  long  custom  for  assessing  property.  Section  1  of  article  9 
of  the  Constitution  requires  taxation  of  property  in  proportion  to 
value  and  authorizes  the  General  Assembly  to  provide  such  revenue 
as  may  be  needful  by  levying  a  tax  by  valuation,  so  that  every  person 
and  corporation  shall  pay  a  tax  in  proportion  to  the  value  of  his,  her 
or  its  property.  Such  value  is  to  be  ascertained  by  some  person  or  per- 
sons to  be  elected  or  appointed  in  such  manner  as  the  General  Assem- 
bly shall  direct,  and  any  error  in  the  exercise  of  honest  judgment  will 
not  invalidate  a  tax,  but  an  arbitrary,  known  and  intentional  viola- 
tion of  the  rule  of  uniformity  is  an  invasion  of  constitutional  right 
and  will  not  be  tolerated.  It  is  sufficient  for  an  objector  to  show 
such  willful  and  intentional  violation  of  the  constitutional  provi- 
sion, and  where  an  assessment  shows  a  very  great  disparity  and  dis- 
crimination, which  could  not  reasonably  have  arisen  from  an  error, 
of  judgment,  the  courts  will  give  relief.  (EaATiiond  v.  Chicago 
Union  Traction  Co.  207  U.  S.  20.)  The  objection  showed  such 
alleged  disparity  and  discrimination  between  the  full  cash  value 
of  appellant's  property  and  the  valuation  of  forty  per  cent  of  such 
cash  value  of  all  other  property,  and  the  appellant  had  a  right  to 
prove  the  objection.  If  the  appellant  had  failed  to  avail  itself  of 
any  lawful  opportunity  to  obtain  relief  against  the  assessment  it 
was  a  matter  for  defense  and  proof  and  did  not  justify  striking  the 
objection  from  the  files.  If  there  was  a  defense  of  res  judicata  or 
estoppel  or  any  other  alleged  defense  it  was  to  be  shown  in  answer 
to  the  objection  and  afforded  no  reason  for  striking  the  objection 
from  the  files.  It  seems  to  be  assumed  that  the  court,  in  striking 
the  objection  from  the  files,  took  judicial  notice  of  some  alleged 
facts,  but  the  doctrine  of  judicial  notice  is  a  branch  of  the  law  of 


170       WEYERHAEUSER  TIMBER  CO.  V.  PIERCE  COUNTY.        [cHAP.  II. 

evidence,  and  authorizes  the  court,  wlienever  a  fact  is  material,  to 
take  judicial  notice  of  the  fact,  but  it  must  be  presented  to  the  court 
in  some  ^vay  and  not  b}'  demurrer  or  motion  to  strike. 

The   judgment   of   the   county   court   is   reversed   and   the   cause 
remanded. 

Reversed  and  remanded. 


WEYERHAEUSER  TIIVIEER  CO.  v.   PIERCE   COUNTY. 
Supreme  Couet  of  Washington.     1917. 

[Reported  97  Wash.  534.] 

Ellis^  C.  J.  The  Weyerhaeuser  Timber  Company  and  the  North- 
western Improvement  Company  began  separate  actions  against 
Pierce  county  for  the  cancellation  of  a  portion  of  the  taxes  assessed 
against  certain  timber  lands  for  the  j^ear  1914  on  the  ground  of 
overvaluation,  and  for  recovery  of  excess  payments  made  under 
protest.  By  stipulation  the  two  actions  were  consolidated  for  trials 
with  an  agreement  that  separate  judgments  be  entered.  Supple- 
mental complaints  were  filed  presenting  the  same  issue  as  to  the 
assessed  valuations  for  the  year  1915,  upon  which  taxes  were  not 
then  due.  The  Weyerhaeuser  Timber  Company  sought  a  reduction 
of  $24,130.58  on  its  tax  of  $60,152.65,  and  the  Northwestern  im- 
provement Company  a  reduction  of  $5,648.65  on  its  tax  of  $9,773.34. 
The  trial  court  found  that  plaintiffs  were  entitled  to  a  16  2-3  per 
cent  reduction  in  the  amount  of  the  valuations  upon  which  they 
had  been  assessed,  gave  judgment  to  the  Weyerhaeuser  company  in 
the  sum  of  $11,314.17  for  the  excess  taxes  of  1914  paid  under  pro- 
test, and  decreed  an  equivalent  reduction  of  the  taxes  falling  due 
for  the  year  1915.  In  the  case  of  the  Northwestern  Company, 

the  court  gave  judgment  canceling  its  taxes  in  the  sum  of  $1,628.72 
for  the  year  1914,  and  in  the  sum  of  $1,642.52  for  the  year  1915,  the 
variation  in  amounts  being  due  to  tlie  fact  that  the  assessor  had, 
in  certain  instances,  increased  the  valuation  for  the  latter  year  over 
that  of  the  preceding  year.  From  these  judgments,  the  plaintiffs 
and  defendant  both  appeal,  the  former  claiming  they  are  entitled 
to  a  further  reduction  in  valuations,  the  latter  that  the  court  erred 
in  granting  any  reduction.  To  avoid  confusion  we  shall  refer  to 
the  parties  throughout  as  plaintiffs  and  defendant. 

Plaintiffs  have  moved  to  strike  the  abstract  of  the  record  filed  by 
defendant  in  support  of  its  appeal.  It  is  urged  that  it  has  no  place 
in  the  record  because  defendant  took  no  exceptions  to  the  court's 
findings  of  fact  (Harbican  v.  Chamberlin,  82  Wash.  556,  144  Pac. 
717)  ;  and  further,  that  it  is  useless,  in  that  defendant's  brief  in- 
sufficiently refers  to  the  pages  of  the  abstract  for  verification.  Rule 
VIII,  71  Wash.  xlix.  Regardless  of  defendant's  cross-appeal,  its 
abstract  may  be  treated  as  supplemental  to  that  filed  by  plaintiffs 
on  their  own  appeal.  Such  an  abstract  the  statute  permits  a  re- 
spondent to  supply.     Though  not  referred  to  in  defendant's  brief 


.SECT.  III.]        WKVEKllAKLSKK  TlMIiEli  CO.  V.  PIEKCE  COUXTY.        l7l 

as  freely  as  could  be  desired  for  tlie  convenience  of  the  court, 
tliis  abstract  has  been  useful,  alike  with  that  of  plaintiffs',  in  mar- 
shaling tlie  contents  of  a  voluminous  record.     The  motion  is  denied. 

Plaintiffs  contend  that  their  properties  were  subjected  to  an  arbi- 
trary and  excessive  valuation,  in  that  (1)  they  are  now  a.ssessed 
at  values  placed  on  them  at  the  height  of  a  boom  in  the  lumber 
industry,  and  that,  at  tbe  time  of  as.sessment,  suit  and  trial,  lumber 
values  liad  depreciated  from  tliirty  to  fifty  per  cent;  (2)  tbat  an 
arbitrary  zone  system  was  employed  resulting  in  a  valuation  of  $1 
per  thousand  being  placed  on  their  fir  timber  within  one  mile  of  a 
logging  road  or  other  outlet,  and  a  reduction  of  five  cents  per  thou- 
sand with  each  mile  of  recession  from  such  road  or  outlet,  regard- 
less of  logging  conditions  and  the  quality  and  accessibility  of  the 
timber;  (3)  that  all  hemlock,  regardless  of  quality  and  accessibility, 
was  assessed  on  an  arbitrary  valuation  of  25  cents  per  thousand; 
(4)  that,  in  addition  to  tlie  valuation  of  the  timber  for  more  than 
it  was  worth,  a  land  value  averaging  $1.75  per  acre  was  included; 
and  (5)  that,  for  the  years  1914  and  1915,  all  of  the  property  in 
Pierce  county,  save  timber  lands  and  other  unimproved  lands,  was 
assessed  on  a  basis  not  exceeding  fifty  per  cent  of  the  true  value 
in  compliance  with  the  act  of  1913  (l\em.  Code,  §  9112),  while 
timber  lands  and  unimproved  lands  were  assessed  as  before  on  a 
basis  of  sixty  per  cent,  which  course  was  arbitrary  and  unconstitu- 
tional. 

"VVe  sball  first  take  up  the  claim  of  plaintiffs  as  to  the  valuation 
of  the  fir  timber,  including  cedar  and  spruce,  for  the  years  1914 
and  1915.  In  order  to  obtain  a  clear  understanding  of  the  situation, 
it  is  necessary  to  recur  to  the  work  of  the  assessor's  office  for  prior 
years.  The  evidence  shows  that,  in  the  year  1908,  all  property  in 
Pierce  county  was  valued  by  the  assessor  for  assessment  purposes 
on  a  basis  of  sixty  per  cent  of  its  full  value.  In  fixing  the  values 
of  fir  timber,  he  adopted  a  zone  system,  placing  the  assessment 
$1  per  thousand  feet,  and  reducing  the  values  five  cents  per 
thousand  for  each  additional  mile  until  a  minimum  of 
fifty  cents  was  reached,  which  minimum  was  thereafter  applied 
regardless  of  added  distances.  In  making  these  figures,  it  fairly 
appears  that  the  assessor  failed  to  take  into  consideration  the  ele- 
ments of  qiiality  and  quantity  of  timber,  its  accessibility  and  the 
logging  conditions.  The  values  fixed  by  the  assessor  in  the  year 
1908  wore  adopted  in  each  subsequent  biennial  valuation  for  assess- 
ment without  material  change,  and  are  the  figures  now  in  issue 
as  the  assessment  values  for  the  years  1914  and  1915.  By  the  act 
of  1913  (Eem.  Code,  §  9112),  "it  is  provided  that  "all  property 
shall  be  assessed  at  not  to  exceed  fifty  per  cent  of  its  true 
and  fair  value  in  money."  In  making  his  assessment  for  the 
years  1914  and  1915,  the  assessor  reduced  the  value  of  all 
property,  excepting  timber  lands  and  unimproved  proportv.  to  a 
figure  not  exceeding  fifty  per  cent  of  its  full  value,  while  continuing 
in  force  the  old  1908  assessment  on  a  sixty  per  cent  basis  withouf; 
reduction  as  to  timber  lands  and  unimproved  property;  this,  not- 


172       WEYEKHAEUSEK  TIMBER  CO.  V.  PIEECE  COUiS'TY.        [ciIAP.  II. 

withstanding  the  fact,  as  the  evidence  shows,  that  timber  values  had 
depreciated  fully  25  per  cent  at  the  time  the  assessment  in  dispute 
was  made.  The  valuation  in  1908  was  made  at  a  time  when  the 
lumber  industry  in  this  State  had  reached  the  highwater  mark,  from 
which  stage  it  had  steadily  subsided  until  the  period  covered  by  the 
years  1914  and  1915, 

The  trial  of  this  action  was  had  in  1915,  and  the  evidence  of 
values  prevailing  at  that  time  and  at  the  time  of  the  assessment 
is  widely  divergent,  the  witnesses  for  plaintiffs  generally  placing 
the  values  lower  than  jDlaintilfs  concede,  while  the  witnesses  for  the 
county  in  some  cases  exceed  the  assessor's  values.  But  averaging 
the  figures  of  all  the  witnesses  on  both  sides,  we  believe,  invariably 
results  in  a  valuation  lower  than  that  fixed  by  the  assessor.  For 
instances,  in  township  16  north,  range  3  east,  the  average  assessed 
value  is  70.8  cents  per  thousand,  and  the  average  value  placed  by 
the  witnesses  is  48  cents,  while  the  plaintiff  concedes  a  value  of  41.5 
cents.  In  so  far  as  the  credibility  of  witnesses  is  concerned,  those 
for.  plaintiffs  are  sustained  in  large  part  by  the  cruise  of  timber  lands 
made  by  the  county  in  the  year  1907  for  use  in  the  assessment  of 
timber  lands  for  taxation.  This  cruise  is  in  evidence,  and  the  court 
found  "  that  said  cruise  was  made  and  that  it  was  a  careful,  accurate 
and  correct  cruise,  and  has  been  admitted  to  be  such  by  both  of  the 
parties."  A  sample  comparison  of  an  assessment  with  the  cruise 
description  will  be  of  interest.  The  cruise  describes  the  fir  tim- 
ber on  the  east  one-half  of  section  13,  township  16  north,  range 
3  east,  as  small  and  of  inferior  quality,  while  the  west  half  has 
"some  good  logs."  On  1,837  feet,  standing  two-thirds  on  the  east 
side  and  the  balance  on  the  west,  the  high  assessment  valuation  of 
$1.15  is  placed,  whicli  plaintiff  asks  to  be  reduced  to  40  cents.  The 
highest  valuation  placed  on  land  in  that  township  by  tlie  county's 
witness  Flint  was  only  $1.25,  which  on  a  fifty  per  cent  basis  for 
assessment  would  be  63.5  cents.  The  inequality  in  the  work  of  the 
assessor  finds  further  demonstration  in  his  failure  to  place  the 
same  ratings  upon  different  tracts  of  timber  practically  equivalent 
in  quality,  quantity  and  logging  conditions.  For  instance,  in  town- 
ship 18  north,  range  6  east,  the  fir  and  cedar  in  section  23  is  rated 
at  $1.20,  while  in  section  15  it  is  rated  85  cents.  In  the  former  the 
fir  is  "  old  growth,  sound  and  smooth,"  the  cedar  "  strictly  shingle 
timber,  a  great  many  trees  will  go  to  pieces  in  falling."  In  the  latter 
the  fir  is  "  large,  sniooth  and  sound,  first-class  timber,"  and  the  same 
description  applies  to  the  cedar.  Section  15  shows  a  somewhat  higher 
grade,  and  is  one-half  mile  nearer  railroad  transportation,  yet  is 
valued  35  cents  lower  than  section  23.  All  the  timber  on  which 
reductions  are  sought  is  located  in  rough,  broken,  and  in  some  cases 
mountainous  districts  where  logging  conditions  are  unfavorable  and 
often  practically  prohibitive.  The  figures  obtained  from  averaging 
the  testimony  discloses  an  overvaluation  by  the  assessor  to  the  extent 
of  at  least  25  per  cent,  and  this  is  supported  by  the  disclosures  of 
the  cruises  in  evidence.  The  cruises,  which  are  records  in  the  as- 
sessor's office,  tend  to  show  either  arbitraiy  action  or  marked  inad- 


SECT.  III.]        WEYEEHAEUSER  TIMBER  CO.  V.  PIERCE  COUNTY.       173 

vertence  in  making  the  valuation.^  upon  the  lands  here  in  controversy. 
The  apparent  fact  that  the  assessor  merely  adopted  the  figures  of 
an  assessment  made  six  years  earlier  certainly  fails  to  show  the  ex- 
ercise of  an  advised  and  mature  judgment.  And  it  is  undisputed 
that  the  value  of  timber  had  depreciated  to  a  veiy  considerable  extent 
at  the  time  the  assessment  of  l'J14  was  made.  The  assessor  himself 
testified  before  the  State  board  of  equalization  as  follows: 

"  Now,  in  regard  to  timber  land,  you  will  find  that  we  have  gen- 
erally kept  the  assessable  values  of  timber  lands  in  Pierce  county 
up  to  about  what  they  were  formerly.  .  .  .  ]\Iilling  properties,  as  we 
all  know,  have  gone  down  greatly  in  the  last  year,  especially  in  this 
county.  .  .  .  Many  of  them  have  gone  out  of  business,  it  is  a  hard 
row  for  the  milling  interests.  .  .  .  "We  have  kept  those  values  too 
high.  They  are  too  high  now,  and  it  is  almost  criminal  with  the 
conditions  of  the  timber  interests  to  hold  their  values  up  the  way 
we  have  done  for  assessable  purposes." 

The  evidence  is  extremely  voluminous.  We  have  examined  it 
carefully  and  it  is  obviously  impracticable  to  discuss  it  more  in  detail. 
It  must  suffice  to  state  our  conclusions.  "We  are  satisfied  that  the 
assessor  did  adopt  the  old  valuations  of  1908  without  revision  in  the 
light  of  the  current  market  value  of  timber  and  timber  lands,  and 
without  applying  the  fifty  per  cent  basis  for  assessment,  and  that 
this  course  was  arbitrary  and  discriminatory.  AVe  are  further  sat- 
isfied that  the  original  valuation  of  these  timber  lands  in  1908  was 
made  upon  a  fundamentally  wrong  basis  or  theory,  in  that  the  zone 
system  employed  had  no  relation  to  the  quality  or  accessibility  of 
the  timber  on  any  given  tract,  and  was  essentially  arbitrary  and 
prohibitive  of  the  exercise  of  any  personal  judgment  on  the  part 
of  the  assessing  officers  as  to  actual  value  of  these  fir,  cedar  and 
spnice  timber  lands.  For  a  decision  expressly  so  holding,  see  Hor- 
sey V.  Board  of  Supervisors  of  Barron  County,  37  Wis.  75.  Finally, 
we  are  satisfied  from  all  of  the  evidence  that  these  things  have  re- 
sulted in  making  the  fir,  cedar  and  spruce  timber  valuations  exces- 
sive to  the  extent  of  at  least  twenty-five  per  cent. 

Turning  now  to  the  hemlock  timber,  we  find  that  it  was  assessed 
for  the  years  here  in  question  at  a  flat  rate  of  25  cents  per  thousand 
throughout  the  county.  Plaintiffs  claim  that  this  valuation  was 
placed  without  regard  to  quality,  accessibility  or  logging  conditions, 
and  that,  taking  these  elements  into  consideration,  their  hemlock 
values  should  be  reduced  to  values  ranging  from  2.5  cents  to  20  cents 
per  thousand  upon  various  sections.  This  would  result  in  an  average 
valuation  upon  the  Northwestern  Improvement  Company's  lands  of 
9.5  cents  per  thousand,  and  upon  the  Weyerhaeuser  lands  of  10.5 
cents  per  thousand.  The  reduction  made  by  the  trial  court,  from 
a  sixty  per  cent  to  a  fifty  per  cent  basis  of  valuation,  produced  a 
value  for  assessment  of  20.8  cents  instead  of  25  cents  per  thousand. 
The  evidence  shows  that  good  hemlock  undoul)tedly  has  a  full  value 
of  fifty  cents  per  thousand  where  it  is  in  sufficient  quantity  and 
easy  of  access  for  logging.  Wliile  some  of  the  hemlock  in  dispute 
meets  these  requirements,  it  is  clear  that  most  of  it  does  not.    Much 


IT-i       WEYERHAEUSER  TIMBER  CO.  V.  PIERCE  COUNTY.        [ciIAP.  II. 

of  it  is  described  as  small,  rough,  limby,  knott}',  scrubby,  conky,  and 
poor,  while  some  is  described  as  medium  and  second  class.  On  a 
few  of  the  sections  it  is  of  first  class  quality  and  abundant.  It 
appears  from  the  evidence  that  it  did  not  pay  to  log  hemlock,  since 
it  had  veiy  little  commercial  value  at  the  time  of  trial.  It  has  a 
tendency  to  rot  where  exposed  to  the  elements,  but  it  is  conceded 
that  it  has  a  value  for  interior  use  in  buildings.  Undoubtedly  hem- 
lock has  a  value,  but  the  quality  and  logging  conditions  of  most  of 
that  in  controversy  renders  it  practically  unmarketable.  It  is  lo- 
cated upon  steep  and  broken  territory,  in  great  part  inaccessible 
to  logging  roads  and  without  streams  capable  of  being  utilized  as  an 
outlet,  owing  to  precipitous  banks  and  rocky  bottoms.  This  class 
of  timber  is  described  by  some  of  the  witnesses  as  having  only  a 
speculative  future  value,  and  as  practically  worthless  at  the  present 
time. 

Carefull}'  considering  the  testimony  of  all  the  witnesses,  we  find 
that  they  place  an  average  assessment  value  on  the  Northwestern 
company's  hemlock  of  16  cents  per  thousand,  and  upon  that  of  the 
"Weyerhaeuser  company  of  21  cents.  In  the  case  of  the  latter  com- 
pan}^s  hemlock,  this  valuation  by  the  witnesses  is  substantially  the 
amount  to  which  the  trial  court  found  they  were  entitled,  and  no 
further  reduction  would  be  warranted.  But  in  the  case  of  the  North- 
western company,  we  think  the  evidence  justifies  a  reduction  to  the 
extent  of  25  per  cent  of  the  assessed  valuations,  or  a  value  of  18-^4 
cents  per  thousand.  The  very  fact  of  the  imposition  of  a  flat  rate  of 
valuation  by  the  assessor,  in  the  light  of  the  evidence,  shows  that  he 
did  not  exercise  his  judgment  by  taking  into  consideration  the  real 
values  of  the  different  tracts  of  hemlock.  This  is  further  confirmed 
by  the  fact  that  he  adopted  without  change  the  work  of  a  prior  assessor, 
made  at  a  time  when  the  market  value  of  all  timber  was  admittedly 
higher  and  when  the  valuation  then  made  and  here  adopted  was 
regarded  as  being  sixty  per  cent  of  the  higher  actual  values  exist- 
ing at  that  time. 

In  making  this  assessment  the  assessor  included  also  a  "land 
value,"  not  for  the  purpose  of  separately  assessing  the  land,  but 
as  an  element  of  value  to  be  considered  in  assessing  the  land  with 
the  timber  it  bears  as  real  estate.  This  land  value  for  assessment 
purposes  was  placed  at  from  $1  to  $3  per  acre,  resulting  in  an  aver- 
age valuation  of  $1.75  per  acre  on  the  lands  here  involved.  The 
Weyerhaeuser  Timber  Company  contends  that  the  lands  have  no 
value  except  to  carry  the  timber,  and  inasmuch  as  the  timber  was 
assessed  to  the  value  allowed  by  law,  that  value  absorbed  the  land 
value  and  the  further  assessment  of  the  lands  was  illegal.  The  evi- 
dence shows  that  timber  lands  were  usually  valued  only  for  the 
timber  upon  them,  and  were  bought  and  sold  on  that  basis.  But 
it  further  appears  that  logged  off  lands  are  generally  held  by  the 
lumberer  for  sale,  the  evidence  showing  prices  in  some  instances 
of  $3  per  acre.  The  evidence  shows  that  some  of  the  land  in  con- 
troversy could  be  utilized  for  agriculture  and  some  for  grazing, 
but  a  considerable  part  is  fit  only  for  reforestation.     Such  evidence 


SECT.  111.]        WEYERHAEUSER  TIMBER  CO.  t'.  PIERCE  COUiSTY.       175 

is  sufficient  to  sliow  that  tlie  land  carries  some  value  in  and  of  itself 
aside  from  the  timber. 

Plaintilf  does  not  speciiically  attack  the  valuations  on  any  tract 
as  being  excessive  as  a  land  valuation,  but  it^  position,  in  effect, 
amounts  to  a  charge  that  an  assessment  botii  on  the  land  and  on 
the  timber  constitutes  double  taxation  of  the  same  property.  It 
seems  a  sullicient  answer  to  say  that  the  laud  was  not  separately 
assessed  nor  sepai-ately  taxed,  it  was  merely  considered  as  an  element 
of  value  which,  with  the  value  of  the  timber,  goes  to  make  up  the 
value  of  the  whole  as  real  estate.  Plaintiiis'  view  does  not  seem 
tenable  under  our  system  of  taxation  requiring  all  real  property 
to  be  assessed  unless  specifically  exempted.  Our  statutes  (Kem. 
Code,  §§  9095  and  9:;i23-l)  permit  the  separate  taxation  of  standing 
timber  only  in  case  the  land  and  the  timber  are  held  in  separate 
ownersliij).  This  is  a  legislature  recognition  of  the  fact  that  the  land 
value  is  not  absorbed  in  the  timber  value,  but  is  an  element  of  value 
to  be  considered  in  the  assessment  of  timber  lands  when  both  land 
and  timber  are  held  in  the  same  ownership.  Real  property  for  pur- 
poses of  taxation  is  defined  by  l\em.  Code,  §  9092,  as  including  "  the 
land  itself  .  .  .  and  all  rights  and  privileges  thereto  belonging,  or 
in  anywise  appertaining."  We  cannot  escape  the  conclusion  that 
land  has  some  intrinsic  value  aside  from  what  it  carries  and,  as  such, 
is  subject  to  taxation,  however  great  or  small  may  be  the  value  of  the 
ap{)urtenant  timber.  "While  it  would  seem  that  lower  land  values 
would  be  appropriate  in  this  case,  there  is  no  evidence  of  arbitrary 
action  on  the  part  of  the  assessor  so  far  as  the  land  values  are  con- 
cerned, beyond  the  fact  of  his  adoption  of  a  sixty  per  cent  instead  of 
a  fift}'  per  cent  basis  of  valuation  for  assessment  purposes.  That 
inequitable  factor  permeates  the  whole  assessment.  Plaintiff  is  en- 
titled to  the  IG  2-3  per  cent  reduction  made  by  the  trial  court  in  the 
element  of  "land  values,"  the  same  as  in  the  element  of  the  tim1)er 
values  of  its  real  estate.  This  ruling  does  not  apply  to  the  North- 
western company,  since  in  this  action  that  company  does  not  seek 
a  reduction  in  "  land  values." 

The  law  of  this  case  is  comparatively  simple.  It  is  well  settled 
that  the  assessor  and  board  of  equalization  act  in  a  quasi-Judicial 
capacity,  that  the  law  presumes  that  they  have 'performed  their  duties 
in  a  proper  manner,  that  this  presumption  will  be  liberally  indulged, 
and  that  the  evidence  to  overthrow  it  must  be  clear.  Tcmpleton  v. 
Pierce  Countv,  25  Wash.  377,  65  Pac.  553 ;  National  Lumber  &  M^. 
Co.  r.  Chehalis  County,  86  Wash.  483,  150  Pac.  "1164;  Hillman's 
Snohomish  Countv  Land  &  E.  Co.  v.  Snohomish  Clountv,  87  Wash. 
58,  151  Pac.  96;  Hueston  v.  King  County,  90  Wash.  200,  155  Pac. 
773;  Northwestern  Improvement  Co.  v.  Pierce  Countv,  ante,  p.  528, 
167  Pac.  33.  But  it  is  equally  well  settled  in  this  State  that,  where 
the  evidence  shows  arbitran'  or  capricious  action  on  the  part  of  the 
assessing  oflficer  rather  than  th"  excrri'^e  of  an  honest  judgment,  or 
shows  that  he  proceedorl  upon  a  fundamentally  wroncr  basis  or  theoT-y 
in  makinsx  the  assessment,  the  courts  will  srant  relief  against  an  over- 
valuation of  real  property,  and  this  regardless  of  the  action  of  the 


17G       WETEEHAEUSEE  TIMBER  CO.   V.   TIEKCE   COUXTY.    [CHAP.   II. 

board  of  equalization  in  the  premises.  First  Thought  Gold  Mines, 
Limited,  v.  Stevens  County,  91  Wash.  437,  157  Pac.  1080;  Northern 
Pac.  E.  Co.  V.  Benton  County,  87  Wash.  53-1,  151  Pac.  1123.  It 
is  also  well  settled  that  there  is  neither  that  uniformity  nor  equality 
■o'hich  the  law  requires,  where  all  kinds  of  property  save  one  are 
designedly  and  of  fixed  purpose  assessed  at  less  than  a  given  per- 
centage of  their  full  and  fair  value,  Avhile  that  one  class  of  property 
is  assessed  at  a  greater  percentage  of  such  value. 

"Such  an  arbitrary  policy  is  vicious  in  principle,  violative  of 
the  constitution,  and  operates  as  a  constructive  fraud  upon  the  rights 
of  the  property  holder  discriminated  against.  In  such  cases  equity 
will  grant  relief."  Spokane  &  Eastern  Trust  Co.  v.  Spokane  County, 
70  Wash.  48,  126  Pac.  54,  Ann.  Cas.  1914B  641. 

See,  also,  Spokane  &  I.  E.  E.  Co.  v.  Spokane  Countv,  82  Wash. 
24,  143  Pac.  307,  and  Greene  v.  Louisville  &  Interurban  E.  Co., 
244  U.  S.  499. 

Though  this  court  has  held  that  it  will  not  interfere  with  an 
assessment  upon  the  sole  ground  of  excessive  valuation,  in  the  ab- 
sence of  some  showing  of  actual  fraud  or  arbitrary  action,  unless  the 
assessment  be  so  great  as  to  amount  in  itself  to  fraud  in  law  (North- 
ern Pac.  E.  Co.  V.  State,  84  Wash.  510,  147  Pac.  45,  Ann  Cas.  1916E 
1166;  Hueston  v.  King  County,  supra),  it  is  obvious  that  this  rule 
has  no  application  to  a  case  where  the  evidence  shows  such  actual 
arbitrary  action. 

Applying  the  evidence  in  the  light  of  these  well  established  prin- 
ciples, we  are  constrained  to  direct  the  modification  of  the  judgment 
in  the  following  particulars :  On  plaintiffs'  appeal,  the  judgment 
of  the  trial  court  will  be  modified  to  the  extent  of  granting  plain- 
tiffs a  25  per  cent  reduction  on  the  fir,  cedar  and  spruce  values  for 
the  years  1914  and  1915  upon  all  that  class  of  timber  in  controversy 
in  this  action.  As  to  the  hemlock  timber,  the  Weyerhaeuser  Timber 
Company  will  be  granted  a  16  2-3  per  cent  reduction  on  such  timber 
located  in  township  16  north,  in  ranges  5  and  6  east,  township  18 
north,  range  6  east,  and  township  19  north,  in  ranges  7,  8  and  9 
east.  The  Northwestern  Improvement  Company  will  be  granted 
a  25  per  cent  reduction  in  the  assessed  value  of  its  hemlock  timber 
in  townships  15,  16,  If,  18  and  19  north,  range  6  east.  The  "land 
values"  of  all  the  lands  of  plaintiff  Weverhaeuser  Timber  Company 
here  involved  will  stand  as  reduced  by  the  trial  court  16  2-3  per  cent 
to  bring  it  to  fifty  per  cent  of  full  value  corresponding  with  other 
classes  of  property.  These  reductions  are  not  to  be  considered  as 
additional  to  the  "freneral  reduction  made  bv  the  trial  court,  but  as 
including  that  reduction. 

By  its  cross-appeal,  defendant  assigns  as  error  the  action  of  the 
trial  court  in  makinor  a  16  2-3  per  cent  reduction.  What  we  have 
said  touching  plaintiffs'  appeal  sufficiently  disposes  of  this  assi,gn- 
ment. 

Some  complaint  is  also  made  of  the  action  of  the  trial  court  m 
admittiuo"  in  evidence  assessments  for  years  prior  to  those  involved 
in  the  present  controversy.    We  tliink'  however,  that  this  evidence 


SECT.    III.]  AUDITOK  GENERAL    V.    JENKINSON.  177 

was  admissible  on  two  grounds  —  for  the  purpose  of  showing 
that  the  assessor,  in  making  the  1914  and  1015  assessments,  merely 
adopted  the  valuation  of  prior  assessors  without  a  proper  exercise 
of  his  own  Judgment,  and  for  the  further  purpose  of  showing  that 
those  adopted  valuations  were  upon  a  sixty  per  cent  basis  when  the 
law  in  force  in  1914  and  1915  required  a  fifty  per  cent  basis. 

The  cause  is  remanded  with  instructions  to  the  trial  court  to 
modify  the  judgment  in  accordance  with  this  opinion. 

Chadwick^  Maix,  and  Parker,  JJ.,  concur. 


AUDITOR  GENEEAL  v.  JEXKIXSON. 
Supreme  Court  of  Michigan.     1892. 

[Reported  90  Mich.  523.] 

MoxTGOMERY,  J,  The  Auditor  General  having  filed  his  petition 
in  the  manner  required  by  section  53  of  the  tax  law  of  1889,  asking 
that  a  decree  be  entered  for  the  amount  of  taxes  assessed  for  the  year 
1888  upon  delinquent  lands  in  St.  Clair  countj^  the  appellant  filed 
objections  to  the  taxes  assessed  against  her  property,  and  a  hearing 
was  had. 

The  evidence  shows  that  the  vessel  property  owned  in  the  city 
of  Port  Huron  was  assessed  at  10  per  cent  of  its  actual  cash  value. 
The  same  course  had  been  pursued  the  previous  A'car,  and  a  bill  in 
equity  had  been  filed  by  one  Eobert  Walsh  to  test  the  validity  of 
such  assessments. 

J.  B.  Hull,  the  present  controller  of  the  city,  and  one  of  the  super- 
visors in  1888,  was  called  as  a  witness  for  the  appellant,  and,  be- 
ing asked  to  state  what  was  said  in  regard  to  the  arrangement  as 
to  the  assessment  of  vessel  property  for  the  year  1888,  testified: 

"I  think  when  we  were  around, — that  is,  a  little  before  the 
vessel  property  was  put  on  the  assessment  roll,  we  were  around  go- 
ing on  the  property,  making  the  assessment  on  real  estate,  —  Dr. 
Kibbee  said  something  or  other  that  the  vessel  property  had  to  be 
assessed  pretty  low  to  keep  it  here,  —  something  of  the  kind.  Says 
I,  '  What  are  you  going  to  do  ? '  He  said  he  didn't  know,  but  prob- 
ably make  it  about  the  same  as  it  was  last  year,  —  something  of  that 
nature;  I  may  not  get  the  exact  words.  I  do  not  know  what  rate 
of  assessment  was  made,  but  understood  that  it  was  10  or  15  per  cent. 
I  do  not  recollect  the  exact  amount.'' 

Dr.  Kibbee  was  a  member  of  the  board  of  review  in  1888. 

The  learned  circuit  judge  entered  a  decree  requiring  the  appel- 
lant to  pay  the  full  tax  assessed  against  her  property,  and  based 
his  decision  upon  the  ground  that  the  objection  filed  by  her  was 
not  sufficiently  specific.     The  objection  filed  stated  that  — 

"In  the  spring  and  winter  of  1888,  and  prior  to  the  assessment 
of  property  for  taxes  in  the  city  of  Port  Huron  for  tliat  year,  the 
controller  and  supervisors  of  the  several  wards  of  said  city,  whose 


178  AUDITOll   GEXEKAL    V.    JENKINSON.  [cHAP.   II. 

duty  it  was  to  assess  and  value  the  real  and  personal  property  assess- 
able within  said  city,  and  on  which  assessed  valuation  said  taxes  were 
apportioned,  entered  into  a  fraudulent  and  corrupt  agreement  with 
the  owners  of  vessel  property  subject  to  taxation  within  the  said 
city  for  the  purpose  of  relieving  them;  .  .  .  that  in  pursuance  of 
said  agreement  the  assessment  was  made,  and  over  $450,000  worth 
of  property  subject  to  taxation  in  said  city  was  assessed  at  less  than 
one-tenth  of  its  true  cash  value," 

The  circuit  judge,  considering  that  there  was  no  evidence  tending 
to  show  that  any  such  agreement  was  nuide  in  the  spring  of  the  year 
1S88,  although  there  was  evidence  tending  to  show  such  an  agree- 
ment made  in  the  spring  of  1887,  was  of  the  opinion  that  the  objec- 
tions were  fatally  defective.  The  petitioner  asked  to  amend  her 
objections,  but  this  was  denied,  and  a  decree  entered  as  above  stated. 

We  think  the  circuit  judge  was  in  error  in  not  permitting  an 
amendment.  The  tax  law  of  1889  provides  that  proceedings  where 
the  validity  of  any  tax  is  in  dispute  shall,  where  there  is  no  other 
provision  made  therein,  follow  the  ordinary  chancery  practice,  and 
the  court  may  allow  amendment  as  in  ordinary  cases.  We  see  no 
reason  why  such  an  amendment  as  asked  should  not  have  been  allowed. 

But  we  also  tliink  that  the  petitioner  was  entitled  to  relief  upon 
the  objections  as  they  stood.  The  gist  of  the  objection  was  the 
intentional  under-assessment  of  a  large  portion  of  the  property. 
This  was  clearly  proven.  It  was  wholly  immaterial  when  the  cor- 
rupt agreement  was  made  with  reference  to  such  assessment,  or, 
indeed,  whether  any  such  agreement  was  made  at  all.  The  hardship 
to  the  appellant  grew  out  of  such  under-assessment;  and,  if  the 
under-assessment  was  intentional  on  the  part  of  the  assessing  officer, 
it  was  equally  invalid  whether  it  was  the  result  of  an  agreement  with 
the  owners  of  the  property  or  his  own  disregard  of  his  official  duty. 
As  was  said  in  AValsh  v.  King,  74  Mich.  354 : 

*"'  It  is  settled  in  this  State,  as  well  as  elsewhere,  .  .  .  that  in 
a  case  like  the  present,  where  the  assessing  officers  have  purposely, 
in  violation  of  law,  exempted  property  from  taxation,  so  that  the 
burden  of  taxation  rests  unequally,  those  who  are  wronged  by  this 
action  are  entitled  to  remedy  against  such  wrong." 

See,  also,  Merrill  v.  Humphrey,  24  Midi.  170,  and  cases  cited. 

It  is  claimed  by  the  appellant  that  the  entire  tax  assessed  against 
her  should  be  declared  invalid  and  set  aside;  bnt  we  think  otherwise. 
There  is  no  difficulty  in  ascertaining  the  extent  to  which  she  has 
been  affected  by  this  unlawful  omission  of  assessments,  and  it  ap- 
pears that  her  taxes  were  incrensed  in  consequence  of  the  wrongful 
assessment  by  the  sum  of  $31.23.  We  think,  therefore,  that  she  is 
entitled  to  have  this  sum  deducted  from  the  tax  assessed  against 
her,  and  that  this  should  be  the  extent  of  her  relief.  Merrill  v.  Hum- 
phrey, 24  Mich.  170. 

Appellant  is  entitled  to  costs  in  this  Court. 

The  other  Justices  concurred. 


SECT.   III.]  UNION  TANK  LINE  CO.   V-   WBIOnT.  179 


UNION  TANK  LINE  CO.  v.  WRIGnT. 
Supreme  Coukt  of  the  United  States.     1919. 

[Reported  249  V.  8.  275.] 

McReynolds,  J.  This  cause  HMjuires  us  to  consider  the  power  of 
a  State  to  lay  and  collect  taxes  upon  instrumentalities  of  interstate 
commerce  which  move  both  within  and  without  its  jurisdiction. 

Union  Tank  Line  —  plaintiff  in  error  —  an  equipment  company 
incorporated  in  New  Jersey  which  has  never  carried  on  business 
or  had  an  office  in  Georgia,  owns  twelve  thousand  tank  cars  suitable 
for  transporting  oil  over  railroads  and  rents  them  to  shippers  at 
agreed  rates,  based  on  size  and  capacity.  The  roads  over  which  they 
move  also  pay  therefor  stipulated  compensation.  Under  definite 
contract  certain  of  these  cars  were  furnished  to  the  Standard  Oil 
Company  of  Kentucky  and  all  of  those  which  came  into  Georgia 
were  being  operated  by  the  Oil  Company  under  such  agreement. 
They  were  not  permanently  within  that  State  but  passed  "in  and  out." 

March  16,  1914,  the  Tank  Line  made  the  following  tax  return 
to  the  Comptroller  General  for  1913  — 

Name  of  company  Union  Tank  Line 

Value  of  real  estate  owned  by  company  in  or 

out  of  Georgia None 

Number  of  miles  of  E.  R.  lines  in  Georgia  over 

which    ....   cars  are  run    6976.5 

Total  value  of  ....  cars  and  ....  other  personal 

[property  in  Ga.  &  elsewhere]    $10,518,333.16 

Value  franchise   [in  Georgia]    No  franchise 

Total  number  of  miles  R.  R.  lines  over  which 

....  cars  are  run  [in  Ga.  &  elsewhere]    ....      251,999 
Total  value  of  property  taxable  in  Georgia  ....      $47,310.00 
Union  Tank  Line  Company  had  an  everage  of 

57  tank  cars  in  Georgia  during  1913  which 

at  a  value  of  $830  per  car  equals $47,310.00 

Defendant  in  error  expressly  admitted  that  the  average  number 
of  cars  in  Georgia  during  1913  was  fifty-seven,  the  value  of  each 
being  $830  —  total  $47,310;  that  the  owner  had  paid  into  the  State 
treasury  as  taxes  the  full  amount  required  on  sucli  valuation  and 
dui'ing  tluit  year  had  no  other  property  in  the  State.  Acting  upon 
information  contained  in  return  above  quoted,  the  comptroller  gen- 
eral assessed  the  Tank  Line's  property  for  1913  at  $291,196,  its  fran- 
chise at  $27,685;  and  demanded  payment.  In  explanation  of  this 
action  he  wrote  to  it  as  follows: 

"As  to  the  return  filed,  you  have  furnished  the  data  desired,  but 
have  made  an  error  in  the  application  of  same.  After  giving  the 
mileage  for  the  Company  everywhere  and  for  Georgia,  vou  then  go 
nhead  and  assign  57  tank  cars  for  this  State  and  value  them  at  $830 
each,  niakinij  the  total  for  Georda  $47,310.     Tliis  is  an  incorrect 


ISO  UA'IOX   TAXK  LI^'E   CO.    L'.   WEIGHT.  [CHAP.   II. 

method.  If  j'ou  were  to  be  allowed  to  merely  assign  so  many  cars 
To  the  State  for  taxation  there  would  be  no  need  for  the  mileage  fig- 
ures to  be  furnished.  The  valuation  to  be  assigned  to  Georgia  must 
be  in  the  same  proportion  to  the  valuation  for  the  entire  company, 
as  the  mileage  in  Georgia  bears  to  the  entire  mileage  everywhere.  .  .  . 
Or  to  work  it  out  by  percentage  instead  of  proportion:  6,1)76.5  the 
Georgia  mileage,  is  2.76846  per  cent  of  251,999,  the  entire  mileage. 
Georgia  is  therefore  entitled  to  2.T6846  per  cent  of  the  entire  valua- 
tion. This  per  cent  of  $10,518,333  is  $291,195.84,  or  the  same  sum 
arrived  at  by  proportion,  if  we  call  the  84  cents  an  even  dollar.  .  .  . 
A  franchise  value  should  also  be  returned.  And  whatever  the  valua- 
tion you  place  on  the  franchise  for  the  entire  country,  2.76846  per 
cent  of  same  must  be  assigned  to  Georgia.  Thus,  if  you  should 
value  your  franchise  at  $1,000,000,  the  franchise  value  to  be  assigned 
to  Georgia  would  be  $27,685." 

"The  valuation  for  Georgia  was  determined  by  taking  2.76846 
per  cent  of  the  valuation  you  gave  for  the  entire  company,  exclusive 
of  iranchise.  The  2.76846  per  cent  is  the  ratio  the  Georgia  mileage 
bears  to  the  entire  mileage,  as  explained  in  a  previous  letter.  The 
franchise  value  was  obtained  by  placing  your  franchise  for  the  entire 
country  at  an  even  million  dollars  and  giving  Georgia  2.76846  per 
cent  thereof." 

Thereupon,  plaintiff  in  error  instituted  this  proceeding  in  Fulton 
County  Superior  Court  alleging  invalidity  of  the  assessment,  that 
to  enforce  the  tax  would  violate  the  Fourteenth  Amendment,  and 
asked  appropriate  relief.  The  cause  was  tried  upon  pleadings  and 
agreed  statement  of  facts.  Among  other  things,  the  parties  stip- 
ulated : 

"On  April  7,  1914,  when  the  defendant  entered  an  assessment  in 
his  office  of  property  and  franchise  of  the  plaintiff  as  shown  herein- 
before, he  had  no  other  infonnation  for  any  of  the  years  1907  to  1914 
inclusive  than  was  contained  in  the  said  return  filed  by  the  plaintiff 
on  March  16,  1914,  and  embraced  in  this  statement  and  which  was 
refused  by  the  defendant,  and  did  not  know  what  cars  defendant 
had  had  in  Georgia  during  any  of  said  named  years  nor  did  he  as- 
certain the  value  of  such  cars,  but  his  action  was  taken  on  such  in- 
formation hereinbefore  shown;  and  that  the  assessment  so  entered 
by  the  defendant  in  his  office  against  the  plaintiff's  property  during 
said  period  for  each  of  said  years  embraces  the  valuation  of  about 
three  hundred  cars  in  excess  of  what  the  plaintiff  actually  had  in 
the  State  of  Georgia,  during  said  years  of  the  approximate  value  of 
$250,000.00  each  year;  and  that  the  true  value  of  a  tank  car  is 
about  eight  hundred  and  thirty  ($830.00)  dollars  per  car. 

"  That  for  the  year  1914  the  assessment  entered  against  plaintiff 
by  defendant  covered  the  value  of  at  least  three  hundred  and  fifty 
cars  in  excess  of  the  number  of  cars  plaintiff  actually  had  in  the 
State  of  Georgia  for  the  time  said  tax  assessed. 

"That  defendant  in  entering  said  assessment  never  undertook  to 
ascertain  the  actual  property  of  plaintiff's  located  in  the  State  of 
Georgia  during  the  said  years  or  to  assess  its  property  at  its  real 


,,;P^£C*,   III.]  -  UNION   TANK   LINE  CO-  VT  "WIMqiiy.      /  l^t-tf**"^ 

value  for  taxation,  otherwise  than  by  simply  ascertaining  the  per- 
centage of  its  entire  property  shown  by  the  ratio  of  the  railroad 
traversed  by  its  equipment  in  Georgia  and  the  railroad  mileage  trav- 
ersed by  its  eqaii)ment  everywhere  as  shoAvn  by  it;  said  return  filed 
on  March  16,  li)14."  /\ 

The  trial  court  adjudged  the  assessment  good  as  to  both  franchise 
and  physical  property.  The  Supreme  Court  held  no  taxable  fran- 
chise existed,  but  that  the  physical  property  had  been  assessed  as 
required  by  statutes  not  in  conflict  with  either  State  or  Federal 
Constitution.  143  Georgia,  765,  769,  771,  773;  146  Georgia,  489. 
It  said :  "  The  case  relates  to  two  matters,  namely :  a  tax  assessment 
against  tangible  property  of  the  company;  and  "second,  a  claim  of 
right  to  assess  a  franchise  tax.  .  .  .  The  "^effort  was  to  tax  property 
in  this  State,  and  in  doing  so  to  apply  the  statute  designed  as  a  rule 
to  ascertain  the  property  so  coming  into  the  State  and  its  proper 
valuation."  After  quoting  §§  989,  990  and  1031,  Civil  Code  of 
Georgia,  copied  in  the  margin,^  the  opinion  continues  —  "The  sev- 
eral code  sections  embody  the  statutory  scheme  for  taxing  cars  of 
equipment  companies  whose  cars  are  handled  over  the  railroads  in 

*  Civil  Code  of  Georgia. 

See.  080.  "  Each  non-resident  person  or  company  whose  sleepinfr-cars 
are  run  in  this  State  shall  be  taxed  as  follows:  Ascertain  the  whole  number 
of  miles  of  railroad  over  which  such  sleeping-oars  are  run  and  ascertain 
the  entire  value  of  all  sleeping-cars  of  such  person  or  company  then  tax 
such  sleeping-cars  at  the  regular  tax  rate  imposed  upon  the  property  of 
this  State  in  the  same  proportion  to  the  entire  value  of  such  sleeping-cars 
that  the  length  of  lines  in  this  State  over  which  such  cars  are  run  Ijears 
to  the  length  of  lines  of  all  railroads  over  which  such  sleeping-cars  are 
run.  The  returns  shall  be  made  to  the  comptroller-general  by  the  president, 
general  agent,  or  person  in  control  of  such  cars  in  this  State.  The  comp- 
troller-general shall  frame  such  questions  as  will  elicit  the  information 
sought,  and  answers  thereto  shall  be  made  under  oath.  If  the  officers  above 
referred  to  in  the  control  of  said  sleeping-cars  shall  fail  or  refuse  to  answer 
under  oath,  the  questions  so  propounded,  the  comptroller-general  shall 
obtain  the  information  from  such  sources  as  he  may,  and  he  shall  assess 
a  double  tax  on  such  sleeping-cars.  If  the  taxes  herein  provided  for  are 
not  paid,  the  comptroller-general  shall  issue  executions  against  the  owners 
of  such  cars,  which  may  be  levied  by  the  sheriff  of  any  county  of  this  State 
upon  the  sleeping-car  or  cars  of  the  owner  who  has  failed  to  pay  taxes." 

Sec.  090.  "  Any  person  or  persons,  copartnership,  company  or*  corpora- 
tion wherever  organized  or  incorporated,  whose  principal  business  is  fur- 
nishing or  leasing  any  kind  of  railroad  cars  except  dining,  buffet,  chair, 
parlor,  palace,  or  sleeping-cars,  or  in  whom  the  legal  title  in  any  such 
cars  is  vested,  but  which  are  operated,  or  leased,  or  hired  to  be  operated 
on  any  railroads  in  this  State,  shall  be  deemed  an  equipment  company. 
Every  such  company  shall  be  required  to  make  returns  to  the  comptroller- 
general  under  the  same  laws  of  force  in  reference  to  the  rolling  stock  o\\nied 
by  the  railroads  making  returns  in  this  State,  and  the  assessment  of  taxes 
tliereon  shall  be  levied  and  the  taxes  collected  in  the  same  manner  as  pro- 
vided in  the  case  of  sleeping-cars  in  section  080." 

Sec.  10.31.  "Kailroad  companies  operating  railroads  lying  partly  in  this 
State  and  partly  in  other  States  shall  l>e  taxed  as  to  the  rolling  stock 
thereof  and  other  personal  property  anpurtenant  thereto,  and  which  is  not 
permanently  located  in  any  of  the  States  throufrh  which  said  railroads 
pass,  on  so  much  of  the  whole  value  of  rollinsr  stock  and  personal  property 
as  is  proportional  to  the  length  of  the  railroad  in  this  State,  without 
regard  to  the  location  of  the  head  office  of  such  railroad  companies." 


1S2  UNIOX    TANK    LINE    CO,     V.     WRIGHT,  [ciIAP.     II. 

this  State.  Owing  to  the  nature  of  the  business,  it  is  difficult  to 
ascertain  the  number  of  cars  of  equipment  companies  that  come  into 
this  State  and  designate  the  identity  of  each  car  or  its  value.  The 
purpose  of  the  statute  is  to  provide  a  reasonable  method  for  deter- 
mining the  fact  that  cars  come  into  this  State  and  the  values  thereof, 
to  the  end  that  the  equipment  companies  allowing  their  cars  to  come 
into  tliis  State  may  bear  their  just  proportion  of  taxes  leviable  in 
this  State.  The  scheme  of  the  statute  is  what  is  sometimes  called 
the  track-mileage  basis  of  apportionment,  or  what  in  a  more  general 
way  is  termed  the  unit  rule.  The  comptroller-general  followed  the 
statute.  The  unit  rule  has  been  upheld  by  the  Supreme  Court  of  the 
United  States,  in  regard  to  railroads,  telegraph  companies,  and 
sleeping-car  companies.  Kentucky  Eailroad  Tax  Cases,  115  U.  S. 
321;  Western  Union  Telegraph  Company  v.  Massachusetts,  125  U.  S. 
530;  Pullman's  Palace  Car  Co.  v.  Pennsylvania,  141  U.  S.  18.  And 
this  principle  of  average  has  been  approved  in  regard  to  refrig- 
erator-cars. American  Eefrigerator  Transit  Co.  v.  Hall,  174  U.  S. 
70;  Union  Refrigerator  Transit  Co.  v.  Lynch,  177  U.  S.  149.  It 
has  even  been  held  that  the  unit  rule  of  valuation  could  properly 
be  applied  to  the  valuation  of  property  of  express  companies  within 
a  certain  State,  though  there  was  no  phj^sical  connection  wnth  prop- 
erty be3^ond  the  State.  ...  It  seems  to  us,  therefore,  that  the  case  falls 
within  the  rule  laid  down  by  the  Supreme  Court  of  the  United 
States,  as  above  mentioned,  and  that  there  are  no  such  circumstances  as 
to  bring  it  within  the  ruling  made  in  Fargo  v.  Hart,  193  U.  S.  490." 
A  State  may  not  tax  property  belonging  to  a  foreign  corporation 
which  has  never  come  within  its  borders — to  do  so  under  any  for- 
mula would  violate  the  due  process  clause  of  the  Fourteenth  Amend- 
ment. In  so  far,  however,  as  movables  are  regularly  and  habitually 
used  and  employed  therein,  they  may  be  taxed  by  the  State  according 
to  their  fair  value  along  with  other  property  subject  to  its  jurisdic- 
tion, although  devoted  to  interstate  commerce.  "^ATiile  the  valuation 
must  be  just  it  need  not  be  limited  to  mere  worth  of  the  articles 
considered  separately  but  may  include  as  well  "the  intangible  value 
due  to  what  we  have  called  the  organic  relation  of  the  property  _ 
in  the  State  to  the  w^hole  system."  How  to  appraise  them  fairly^"^ 
when  the  tangibles  constitute  part  of  a  going  concern  operating  in 
many  States  often  presents  grave  difficulties;  and  absolute  accuracy 
is  generally  impossible.  We  have  accordingly  sastained  methods 
of  appraisement  producing  results  approximately  correct  —  for  ex- 
ample, the  mileage  basis  in  case  of  a  telegraph  company  (Western 
Union  Telegraph  Co.  v.  Massachusetts),  and  the  average  amount  of  ' 

property  habitually  brought  in  and  carried  out  by  a  car  company 
(American  Refrigerator  Transit  Co.  v.  Hall).  But  if  the  plan  pur- 
sued is  arbitrary  and  the  consequent  valuation  grossly  excessive  it 
must  be  condemned  because  of  conflict  with  the  commerce  clause  or 
the  Fourteenth  Amendment  or  both.  Western  Union  Telegraph 
Co.  V,  Massachusetts,  125  U.  S.  530 ;  Marve  v.  Baltimore  &  Ohio  R.  R. 
Co.,  127  U.  S.  117;  Pullman's  Palace  Car  Co.  v.  Pennsvlvania, 
141  U.  S.  18,  26;  Adams  Express  Co.  v.  Ohio,  1G5  U.  S.  194;  S.  C. 


SECT.  III.]  UNION  TANK  LINE  CO.   V.   WRIGHT.  183 

166  U.  S.  185;  American  Refrigerator  Transit  Co.  v.  Hall,  174  U.  S. 
70;  Union  Refrigerator  Transit  Co.  v.  Lynch,  177  U.  S.  149,  Fargo 
V.  Hart,  193  U.  S.  4D0;  Cudahy  Packing  Co.  v.  Minnesota,  :.'-lG 
U.  S.  450,  453. 

In  the  present  case  the  Comptroller  General  made  no  effort  to 
assess  according  to  real  value  or  otiierwise  than  upon  the  ratio  which 
miles  of  railroad  in  Georgia  over  which  tiie  cars  moved  bore  to  total 
mileage  so  traversed  in  all  States.  Real  values  —  the  essential  aim 
—  of  property  within  a  State  cannot  be  ascertained  with  even  ap- 
proximate accuracy  by  such  process;  the  rule  adopted  has  no  nec- 
essary relation  thereto.  During  a  year  two  or  three  cars  might  pass 
over  every  mile  of  railroad  in  one  State  while  hundreds  constantly 
employed  in  another  moved  over  lines  of  less  total  length.  Fifty- 
seven  was  the  average  number  of  cars  within  Georgia  during  1913 
and  each  had  a  "  true  "  value  of  $830.  Thus  the  total  there  subject 
to  taxation  amounted  to  $47,310  —  the  challenged  assessment  spec- 
ified $291,196. 

We  think  plaintiff  in  error's  property  was  appraised  according 
to  an  arbitrary  method  which  produced  results  wholly  unreasonable 
and  that  to  permit  enforcement  of  the  proposed  tax  would  deprive 
it  of  property  without  due  process  of  law  and  also  unduly  burden 
interstate  commerce. 

Pullman's  Palace  Car  Co.  v.  Pennsylvania,  supra,  relied  on  by 
defcndtmt  in  error,  contains  the  following  passage  which  seems  to 
uphold  the  Georgia  rule  —  "The  mode  which  the  State  of  Penn- 
sylvania adopted,  to  ascertain  the  proportion  of  the  company's  prop- 
erty upon  which  it  should  be  taxed  in  that  State,  was  by  taking  as 
a  basis  of  assessment  such  proportion  of  the  capital  stock  of  the  com- 
pany as  the  number  of  miles  over  which  it  ran  cars  within  the  State 
bore  to  the  whole  number  of  miles,  in  that  and  other  States,  over 
which  its  cars  were  run.  This  was  a  just  and  equitable  method  of 
assessment;  and,  if  it  were  adopted  by  all  tlie  States  through  which 
these  cars  ran,  the  company  would  be  assessed  upon  the  whole  value 
of  its  capital  stock,  and  no  more."  But  the  point  therein  spoken  of 
was  unnecessary  to  determination  of  the  cause;  and  so  far  as  the 
quoted  passage  sanctions  the  specified  rule  for  ascertaining  values 
as  generally  appropriate,  just,  unobjectionable  and  productive  of 
conclusive  results,  it  must  be  regarded  as  obiter  dictum,  and  we  can- 
not now  approve  or  follow  it. 

Reference  to  tlie  original  record  upon  which  that  case  came  here 
will  aid  in  understanding  the  exact  issues  presented.  Pennsylvania 
demanded  taxes  of  the  Pullman  Company,  an  Illinois  corporation, 
for  the  years  1870  to  1880,  upon  such  portion  of  its  capital  stock  as 
total  miles  of  railroad  in  Pennsylvania  over  which  its  cars  moved 
bore  to  like  total  in  all  States.  'No  statute  prescribed  the  method 
of  valuation;  it  had  been  adopted  by  executive  officers.  The  Court 
of  Common  Pleas  declared :  "  On  the  facts  defendant  claims  that  no 
part  of  its  capital  stock  is  invested  in  this  State.  The  argument 
is  that  its  cars  are  personal  property,  and,  as  they  are  not  permanently 
located  in  this  State,  but  pass  into,  through,  and  out  of  it,  this  per- 


184  ^^"I0^'   TA^-K  li^'e  co.    v.  wraoiiT.  [chap.  ii. 

eonal  property  has  no  taxable  situs  in  Pennsylvania,  and  could  not  be 
taxed  specifically  in  any  given  locality;  and  therefore,  it  is  con- 
tended, as  the  tax  on  capital  stock  is  a  tax  on  the  property  in  which 
the  capital  is  invested,  the  latter  cannot  be  taxed.  .  .  .  We  hold, 
therefore,  that  the  proportion  of  the  capital  stock  of  the  defendant 
invested  and  used  in  Pennsylvania  is  taxable  under  these  acts,  and 
that  the  amount  of  the  tax  may  be  properly  ascertained  by  taking 
as  a  basis  the  proportion  which  the  number  of  miles  operated  by 
defendant  in  this  State  bears  to  the  whole  number  of  miles  operated 
by  it,  without  regard  to  the  question  where  any  particular  car  or 
cars  were  used;  .  .  .  The  defendant  is  liable  to  tax  on  the  pro- 
portion of  its  capital  stock  invested  in  this  State,  as  represented 
by  the  coaches  and  cars  owned  and  used  by  it  here.  .  .  .  Determin- 
ing the  amount  of  the  tax  on  the  principle  above  stated,  it  is  as 
foUows:  Tax  for  years  1870  to  1880,  inclusive,  $16,321.89."  The 
Supreme  Court  affirmed  this  view,  saying :  "  While  the  tax  on  the 
capital  stock  of  the  company  'is  a  tax  on  its  property  and  assets,' 
yet  the  capital  stock  of  a  company  and  its  property  and  assets  are 
not  identical.  The  coaches  of  the  company  are  its  property.  They 
are  operated  within  this  State.  They  are  daily  passing  from  one 
end  of  the  State  to  the  other.  They  are  used  in  performing  the 
functions  for  which  the  corporation  was  created.  The  fact  that 
they  also  are  operated  in  other  States  cannot  wholly  exempt  them 
from  taxation  here.  It  reduces  the  value  of  property  in  this  State 
justly  subject  to  taxation  here.  This  was  recognized  in  the  court 
below,  and  we  think  the  [proportion]  preference  was  fixed  accord- 
ing to  a  just  and  equitable  rule." 

In  1870  thePullman  Company's  capital  stock  amounted  to  three 
million  dollars,  in  1880  it  had  gro\vn  to  six  million ;  all  cars  actually 
owned  bv  the  companv  (leased  ones  not  included)  during  1871, 
numbered  241,  and  in  1880,  472,  their  total  value  being  $4,334,000, 
and  $8,588,000  respectively;  one  hundred  cars  were  operated  within 
Pennsylvania  during  each  of  the  eleven  years;  total  miles  of  track 
everywhere  passed  over  by  the  company  cars  during  1880  amounted 
to  57,099,  within  Pennsylvania  5,127,  and  these  figures  adequately 
represent  the  proportion  for  other  years :  total  tax  held  due  for  the 
eleven  years  amounted  to  $16,321.89.  While  the  record  does  not 
disclose  the  precise  valuations  upon  which  taxes  were  computed, 
enough  does  appear  to  show  that  they  were  far  below  (perhaps  not 
one-third)  the  actual  worth  of  a  hundred  cars. 

The  company  demanded  complete  exemption  upon  the  ground 
that  its  ears  were  moving  in  interstate  commerce  and  had  no  tax- 
able situs  in  Pennsylvania.  The  appraisement  was  not  challenged 
as  excessive;  if  the  property  was  taxable  in  Pennsylvania  the  rule 
adopted  may  have  been  decidedly  favorable  to  the  owner  and  the 
assessment  a  moderate  one.  Ha^ang  failed  to  challenge  amount  of 
the  assessment,  the  company  could  not  well  complain  of  the  rule 
under  which  this  was  fixed.  In  such  circumstances  reasonableness 
of  the  rule  was  not  really  in  question  and  what  was  said  of  it  can- 
not control  here  where  the  very  point  is  presented  for  decision. 


SECT.    III.]  WEYERHAUESEK    V.    MINNESOTA.  185 

Cohens  v.  Virginia,  6  ^^^leat.  264,  399;  McCormick  Machine  Co.  v. 
Aultman,  IG'J  L".  S.  GOG,  Gil.  See  also  Adams  Express  Co.  r.  Ohio, 
supra. 

In  other  opinions  of  this  court  cited  below  to  support  the  conclu- 
sion there  reached  we  upheld  the  power  of  a  State  to  tax  propert}' 
actually  within  its  jurisdiction  upon  a  fair  valuation  considered  as 
part  of  a  going  concern  —  they  give  no  sanction  to  arbitrary  and 
inflated  valuations.  Taxes  must  follow  realities,  not  mere  deduc- 
tions from  inadequate  or  irrelevant  data. 

In  Fargo  v.  Hart,  supra,  we  condemned  an  assessment  ostensibly 
proportioned  to  mileage  where  property  without  the  State  and  un- 
necessary to  the  Express  Company's  actual  business  had  been  in- 
cluded; and  we  pointed  out  that  under  no  formula  can  a  State  tax 
things  wholly  beyond  its  jurisdiction. 

The  same  considerations  which  establish  invalidit}^  of  the  assess- 
ment of  plaintiff  in  error's  property  for  1913  apply  to  like  ones 
made  by  the  Comptroller  General  for  all  other  years  in  question. 

Judgment  of  the  court  below  must  be  reversed  and  the  cause  re- 
manded for  further  proceedings  not  inconsistent  with  tliis  opinion. 

Reversed  and  remanded. 

]\Ir.  Justice  Day,  in  view  of  the  undisputed  facts  of  this  case, 
concurs  in  the  result. 

PiTXEY,  Braxdeis,  and  Clark,  JJ.,  dissenting. 


WEYEEHAUESEK  v.  MINNESOTA. 
Supreme  Court  of  the  United  States.    1900. 

[Reported  176  V.  8.  550.] 

McKexna,  J.  The  procedure  under  the  statute  is  as  follows: 
A  complaint  to  the  Governor  of  the  State  that  a  considerable  amount 
of  property  has  been  grossly  undervalued  by  the  assessor  or  other 
count}'  officials. 

The  appointment  by  the  Governor  of  a  competent  person  to  ex- 
amine and  report,  and  if  he  find  undervalued  property  to  prepare 
a  list  in  duplicate  showing  its  character,  location,  ownership  and 
valuation,  one  of  which  lists  shall  be  filed  with  the  county  auditor. 

The  entry  of  the  list  on  the  assessment  books  by  the  auditor. 

The  assessment  of  the  property  at  its  value  corresponding  to  the 
list. 

Proceedings  by  the  county  auditor  as  under  the  general  law. 

This  procedure  was  exactly  followed,  and  it  is  stipulated  that  "  the 
taxes  claimed  in  this  proceeding  are  the  proper  amount  of  taxes  due 
against  said  lands  on  account  of  said  increased  valuation.  ,  .  ." 
In  other  words,  the  lands  have  not  been  made  to  bear  a  greater 
burden  than  thev  would  and  should  have  borne  if  they  had  been 
orifjinally  assessed  at  their  true  valuation.  It  is,  however,  claimed 
that  the  increased  taxation  is  illegal  because  the  law  authorizing 


186  WEYERHAUESER    V.    MINNESOTA.  [ciIAP.    II. 

it  offends  tlie  Fourteenth  Amendment  of  the  Constitution  of  the 
United  States, 

The  grounds  of  the  contention  are  that  the  former  assessments 
constituted  judicial  judgments,  and  hence  to  commit  to  the  executive 
the  power  of  setting  them  aside  or  to  set  them  aside  without  notice 
or  opportunity  to  he  heard  is  not  due  process  of  law.  And  further, 
that  the  statute  deprives  the  plaintiffs  in  error  of  the  equal  protec- 
tion of  the  laws,  in  that  it  gives  to  owners  of  similar  real  estate  an. 
opportunity  to  contest  the  absolute  assessed  valuation  of  their  prop- 
erty and  to  plaintiffs  in  error  only  the  opportunity  to  contest  the 
gross  overvaluation ;  and  that  if  the  State  knew  of  fraud  in  the  as- 
sessments it  is  estopped  to  assert  it  against  an  innocent  party,  which 
pLiintilfs  in  error  are  claimed  to  be,  and  as  the  statute  ignores  this 
doctrine  of  estoppel,  it  does  not  provide  due  process. 

Conceding,  arguendo,  that  the  former  assessments  were  judicial 
judgments,  the  argument  based  on  their  immunity  from  executive 
power  or  attack  is  not  supported  by  the  statute.  It  does  not  com- 
mit to  the  Governor  control  over  them,  and  it  does  give  opportunity 
to  be  heard.  The  Governor  only  starts  the  inquiry  upon  which  the 
reassessment  may  be  based,  and  the  statute  directs  the  proceedings 
in  an  orderly  course  of  inquiry,  report,  entry  upon  the  assessment 
books,  assessment  by  the  assessor  and  an  action  for  the  collection  of 
the  taxes  levied  in  the  regular  judicial  tribunals. 

The  complaint  of  plaintiffs  in  error  seems  to  be  that  a  hearing 
before  the  Governor  was  not  provided.  If  the  basis  of  this  is  that 
tlie  owner  of  property  must  have  notice  of  every  step  in  taxation  pro- 
ceedings, we  agree  with  the  Supreme  Court  of  the  State  that  it  is 
untenable.  Pittsburg,  &c.,  Eailway  v.  Board  of  Public  Works,  172 
U.  S.  32 ;  Davidson  v.  New  Orleans,  96  U.  S.  97 ;  Hagar  v.  Peclama- 
tion  District,  111  U.  S.  701 :  Winona  &  St.  Peter  Land  Co.  v.  Min- 
nesota, 159  U.  S.  526.  If  the  basis  of  the  complaint  is  that  the 
Governor  acts  judicially  and  plaintiffs  in  error  were  entitled  to  have 
notice,  and  be  heard  before  he  rendered  judgment,  it  is  also  un- 
tenable. The  Governor  does  not  act  judicially  —  he  determines 
nothing  but  that  a  complaint  has  been  made  in  writing  and  under 
oath,  or  that  it  has  been  found  by  a  court,  or  the  legislature  or  any 
committee  thereof,  that  a  considerable  amount  of  property  in  a 
county  of  the  State  has  been  grossly  undervalued.  If  the  perception 
of  the  fact  of  a  complaint  or  a  finding  of  a  court  or  legislature  is  a 
judgment  in  the  sense  urged,  every  act  of  government  is  a  judgment, 
and  all  of  its  exercises  could  be  stopped,  upon  the  reasoning  of  plain- 
tiffs in  error,  by  perpetual  hearings.  But  supposing  the  Governor's 
act  is  a  judgment,  it  ends  with  tlie  appointment  of  an  examiner. 
What  is  substantial  comes  afterwards,  and  if  against  wbat  may  be 
detrimental  in  that  the  landowner  can  be  heard,  he  is  afff)rdod  due 
process  within  the  rule  announced  by  the  authorities,  supra. 

That  the  landowner  is  provided  with  an  opportunity  to  be  heard 
is  decided  by  the  Supreme  Court  of  the  State.  In  the  opinion  in 
the  case  at  bar  the  court  said,  quoting  from  Eedwood  v.  Winona  & 
St.  Peter  Land  Co.,  40  Minnesota,  512,  518: 


SECT.    III.]  WEYEEHAUESER   V.    MINNESOTA.  187 

"Within  20  days  after  the  last  puhlication  of  the  delinquent  list 
any  person  may  by  answer  interpose  any  defence  or  objection  he 
may  have  to  the  tax.  He  may  set  up  as  a  defence  that  the  tax  is  void 
for  want  of  authority  to  levy  it,  or  that  it  was  partially,  unfairly  or 
unequally  assessed.  Commissioners  of  St.  Louis  Co.  v.  Nettlcton, 
23  Minnesota,  350.  He  may  set  up  as  a  defence  pro  tanto  that 
a  part  of  a  tax  has  not  been  remitted,  as  required  by  some  statute. 
Commissioners  of  Houston  Co.  v.  Jessup,  Id.  552.  That  the  land  is 
exempt,  or  tiiat  the  tax  has  been  paid.  County  of  Chicago  v.  St. 
Paul  &  Duluth  II.  Co.,  27  Minnesota,  109.  That  there  was  no 
authority  to  levy  the  tax,  or  that  the  special  facts  authorizing  the  in- 
sertion of  taxes  for  past  years  in  the  list  did  not  exist  or  any  omis- 
sions in  the  proceedings  prior  to  filing  the  list,  resulting  to  his 
prejudice.  County  of  Olmsted  v.  Barber,  31  Minnesota,  256.  The 
filing  of  tlie  list  is  the  institution  of  an  action  against  each  tract  of 
land  described  in  it  for  the  recovery  of  the  taxes  appearing  in  the 
list  against  such  tract  and  tenders  an  issue  on  every  fact  necessary 
to  the  validity  of  such  taxes.  Chauncey  v.  Wass,  35  Minnesota,  1. 
The  only  limitation  or  restriction  upon  the  defences  or  objections 
which  may  be  interposed  is  that  contained  in  section  79,  to  the  effect 
that  if  a  party  interposes  as  a  defence  an  omission  of  any  of  the 
things  provided  by  law  in  relation  to  the  assessment  or  levy  of  a 
tax  or  of  anything  required  by  an  officer  to  be  done  prior  to  filing 
the  list  with  the  clerk,  the  burden  is  on  him  to  show  that  such 
omission  has  resulted  in  prejudice  to  him,  and  that  tiie  taxes  have 
been  partially,  unfairly,  or  unequally  assessed.  This  relates  not  to 
want  of  authority  to  levy  the  tax,  but  to  some  omission  to  do  or 
irregularity  in  doing  the  things  required  to  be  done  in  assessing  or 
levying  a  tax  otherwise  valid.  Commissioners  of  St.  Louis  Co,  v. 
Nettleton,  supra.  And  certainly,  in  justice  or  reason,  a  party  can- 
not complain  that  when  he  objects  to  a  tax  on  the  ground  of  some 
omission  or  irregiilarity  in  matters  of  form,  he  is  required  to  show 
that  he  was  prejudiced." 

This  court  in  Winona  &  St.  Peter  Land  Co.  v.  Minnesota,  159 
U.  S.  526,  quoted  the  above  extract  as  establishing  that  the  property 
owner  w^as  afforded  a  hearing  by  the  laws  of  the  State,  and  declared 
the  rule  that  the  Constitution  of  the  United  States  was  satisfied  if 
an  opportunity  be  given  to  question  the  validit}'  or  amount  of  the 
tax  "either  before  that  amount  is  determined  or  in  subsequent  pro- 
ceedings for  its  collection."  And  referring  to  the  dilVerence  in  the 
manner  of  assessment  and  the  successive  opportunities  for  review 
■which  were  given  to  the  property  owner  in  one  case  and  not  in  the 
other,  said :  But  there  is  othing  in  the  difference  to  affect  the  con- 
stitutional rights  of  a  party.  The  legislature  may  authorize  different 
modes  of  assessment  for  different  properties,  providing  the  rule  of 
assessment  is  the  same.  Kentucky  Kailroad  Tax  cases,  115  U.  S. 
321,  337;  Pittsburgh,  Cincinnati,  Szc,  Pailway  v.  Backus,  154  U.  S. 
421.  The  latter  cases  of  State  v.  Lakeside  T^and  Co.,  71  ]\rinnesota, 
283,  and  State  v.  West  Duluth  Land  Co.,  78  X.  W.  J{o]^.  115.  cited 
by  the  plaintiffs  in  error,  do  not  militate  against  the  rule  in  any 
way  substantial  to  tlie  pending  controversy. 


188  I^MBRECHT     V.     "SVILSOX.  [CHAP.     II. 

The  special  objections  of  plaintiffs  in  error  therefore  cannot  be 
sustained,  nor  the  broader  one  that  the  first  assessments  are  final 
against  any  power  of  review  or  addition  by  the  legislature.  "We  held 
in  the  Winona  Case,  siipra,  tliat  the  legislature  had  power  to  provide 
for  the  assessment  of  property  which  had  escaped  taxation  in  prior 
years  and,  as  we  have  seen,  a  special  manner  of  assessment  was  sus- 
tained. We  agree  with  the  Supreme  Court  of  the  State  that  a  gross 
undervaluation  of  property  is  within  the  principle  applicable  to  an 
entire  omission  of  property.  If  it  were  otheru'ise  the  power  and 
•  duty  of  the  legislature  to  impose  taxes  and  to  equalize  their  burdens 
would  be  defeated  by  the  fraud  of  public  officers,  perhaps  induced 
by  the  very  property  owners  who  afterwards  claim  its  illegal  ad- 
vantage. * 

If  an  officer  omits  to  assess  property  or  grossly  undervalues  it  he 
violates  Ms  duty,  and  the  property  and  its  owners  escape  their  just 
share  of  the  public  burdens.  In  Stanley  v.  Supervisors  of  Albany, 
121  U.  S.  535,  we  held  that  against  an  excessive  valuation  of  prop- 
erty its  owner  had  a  remedy  in  equity  to  prevent  the  collection  of 
the  illegal  excess.  It  would  be  very  strange  if  the  State,  against  a 
gross  undervaluation  of  property,  could  not  in  the  exercise  of  its 
sovereignty  give  itself  a  remedy  for  the  illegal  deficiency.  And  this 
is  the  effect  of  the  statute.  It  "merely  sets  in  motion  new  proceed- 
ings to  collect  the  balance  of  the  State's  claim,  and  there  is  no  con- 
stitutional objection  in  the  way  of  doing  this,"  as  the  Supreme 
Court  of  the  State  said  in  its  opinion. 

The  other  objections  to  the  statute  do  not  demand  an  extended 
consideration.  Thal^it  deprives  plaintiffs  in  error  of  the  equal  pro- 
tection of  the  laws  is  based  on  the  absence  of  a  provision  for  notice 
in  the  progress  of  the  proceedings,  and  is  answered  by  the  Winona 
case,  supra. 

The  fourth  contention,  that  the  State  is  estopped  to  assert  fraud 
in  the  former  assessment,  if  we  should  concede  that  it  has  any  basis 
in  law,  lacks  an  essential  basis  of  fact. 

The  plaintiffs  in  error  purchased  after  the  enactment  of  the 
statute,  and  the  record  affords  no  presumptions  of  ignorance  or  in- 
nocence. If  plaintiffs  had  been  attentive  to  the  assessment  of  the 
land  its  gross  undervaluation  could  not  have  escaped  their  notice. 
Besides,  whether  a  party  in  a  case  has  been  given  or  refused  the 
benefit  of  the  law  of  estoppel  involves  no  Federal  question. 

Judgment  ajjirmed. 


LAMBEECHT  v.  WILSON. 
Supreme  Court  of  Illinois.     1919. 

[Reported  290  III.  547.] 

Thompson,  J.  Appellants,  executors  of  the  last  will  and  testa- 
ment of  Susan  Wehrheim,  deceased,  filed  a  bill  in  the  Circuit  Court 
of  Marion  County  against  appellee,  praying  an  injunction  to  re- 
strain appellee,  as  county  collector,  from  collecting  certain  taxes  on 


SECT.   III.]  LAMBEECHT  V.  WILSOX.  189 

property  of  the  estate  of  Susan  Wehrhehu  assessed  b}'  the  board  of 
review  for  omitted  credits  for  previous  years.  The  bill  alleged  that 
the  board  of  review  of  Marion  County  in  iyi8  assessed  against  said 
estate  for  back  taxes,  $6-1,890  for  the  year  1917,  $04,905  for  the  year 
1916  and  $64,950  for  the  year  1915.  These  assessments  were  made 
against  credits  of  Susan  A\'ehrheiiu  which  the  board  of  review  de- 
termined had  not  been  assessed  in  said  years.  The  bill  further 
alleged  that  said  Susan  Wehrheim,  deceased,  had  been  assessed  for 
those  years  on  all  of  her  personal  property,  including  her  credits, 
and  that  taxes  had  been  extended  on  said  assessments  and  had  been 
paid  by  her,  and  that  the  back  tax  assessment  made  by  the  board  of 
review  was  without  authority  and  illegal  and  void.  Issue  was  joined 
on  this  bill,  and  after  a  full  hearing  on  the  merits  the  court  entered 
a  decree  dismissing  the  bill  for  want  of  equity,  and  appellants  prayed 
for  and  have  perfected  this  appeal. 

It  is  agreed  between  the  parties  to  this  litigation  that  the  board 
of  review  properly  assessed  the  estate  of  Susan  Wehrheim  for  the 
year  1918  at  $67,320.  The  estate  consisted  largely  of  credits,  set 
forth  in  the  inventory  as  "  agreements  for  deeds  securing  loans." 
Most  of  this  property  came  to  deceased  by  the  death  of  her  husl)and. 
During  the  twenty  years  following  his  death  there  was  a  gradual 
accumulation  of  property.  It  was  her  practice  in  making  loans  to 
require  the  owner  of  the  real  estate  to  deed  her  the  land  on  which 
the  loan  was  made  and  in  turn  she  gave  to  the  land  owner  a  con- 
tract for  deed.  The  total  amount  of  money  due  on  such  agreements, 
as  set  forth  in  the  inventory  of  her  estate,  is  $61,720.83.  In  addi- 
tion to  this  there  were  two  trust  deeds  aggregating  $2,000,  five  notes 
aggregating  $2,194  and  certificates  of  deposit  aggregating  $875.  In 
addition  to  this  personal  property  the  inventory  shows  she  died 
seized  of  eight  different  tracts  of  real  estate  on  which  no  value  was 
placed.  The  schedule  made  by  Susan  "Wehrheim  for  1917  shows 
the  following  items  of  property  and  the  full  value  as  determined  by 
the  assessor:  "Notes  or  mortgages,  $1500;  credits  of  other  than 
bank,  banker,  broker  or  stock  jobber,  $150 ;  bonds  and  stocks,  $450 ; 
household  or  office  furniture  and  property,  $60;  all  other  personal 
property  required  to  be  listed,  $270,"  —  making  a  total  of  $2430. 
The  schedule  made  in  1916  shows  "  credits  of  bank,  banker,  broker 
or  stock  jobber,  $90 ;  moneys  of  other  than  bank,  banker,  bi-oker  or 
stock  jobber,  $450;  bonds  and  stocks,  $1500;  household  or  office 
furniture,  $45;  shares  of  stock  of  State  and  national  banks,  $270," 
—  making  a  total  of  $2355.  The  schedule  for  1915  shows  "moneys 
of  other  than  bank,  banker,  broker  or  stock  jobber,  $450 :  bonds  and 
stocks,  $1500;  household  and  office  furniture  and  property,  $60; 
shares  of  stock  of  State  and  national  banks,  $360."  —  making  a 
total  of  $2370.  It  is  contended  that  a  part  of  the  values  in  these 
schedules  are  extended  after  the  wTong  item,  and  that  in  the 
schedules  for  1915  and  1916  the  $450  item  should  have  been  placed 
on  the  schedule  one  line  lower,  and  would  have  then  been  a  valua- 
tion of  "  credits  of  other  than  bank,  banker,  broker  or  stock  jobber." 

This  court  has  held  that  when  credits  have  been  assessed  and  taxes 


190  SUNDAY  T.ATsE   lEOX   CO.   V.   WAKEFIELD-  [CHAP.   II. 

extended  upon  the  assessments  and  paid  by  the  taxpayer,  the  board 
o±"  review  iu  subsequent  years  has  no  authority  to  increase  such  as- 
sessments upon  the  theory  that  the  assessment  was  too  low  or  that 
the  board,  in  assessing,  omitted  credits.  (Warner  v.  Campbell,  238 
111.  630.)  In  deciding  this  question  it  was  held  that  the  assessor  is 
required,  in  determining  value  of  property  assessed,  to  exercise  his 
judgment,  and  that  his  acts  are  in  the  nature  of  judicial  acts  and  not 
subject  to  review  by  his  successor  or  by  the  board  of  review  for  errors 
of  judgment.  This  is  undoubtedly  true  where  the  values  hxed  by 
the  assessor  are  within  the  range  of  values  which  might  be  fixed  by 
any  man  exercising  honest  judgment.  Values  are  necessarily  a 
matter  of  opinion,  and  different  men  with  the  same  honest  intention 
would  arrive  at  different  conclusions.  Mere  mistakes  of  the  assessor 
or  errors  of  judgment  will  not  invalidate  an  assessment,  but  valua- 
tions must  be  the  result  of  honest  judgment  and  not  of  mere  will. 
Chicago,  Burlington  and  Quincy  Eailroad  Co.  v.  Cole,  75  111.  591. 

An  over-valuation  or  an  under-valuation  of  property  will  not,  of 
itself  and  alone,  invalidate  an  assessment  (Barkley  v.  Dale,  213  111. 
614),  but  where  the  valuation  is  so  grossly  out  of  proportion  to  the 
true  value  as  to  show  that  the  assessor  could  not  have  been  honest 
in  his  valuation  the  assessment  may  be  impeached  for  fraud,  and  by 
reason  of  fraud  in  making  the  assessment  the  assessment  amounts 
to  no  assessment  at  all.     (State  Board  of  Equalization  v.  People, 

191  111.  528;  People's  Gas  Light  Co.  v.  Stuckart,  286  id.  164;  Weyer- 
haueser  v.  Minnesota,  176  U.  S.  550;  20  Sup.  Ct.  485.)  Where 
valuations  are  so  low  as  to  amount  to  no  valuation  at  all,  an  assess- 
ment on  such  a  valuation  would  amount  to  a  fraud  upon  the  State 
and  it  will  be  regarded  as  no  assessment. 

We  hold,  therefore,  that  Susan  W'ehrheim  was  not  assessed  on 
credits  for  the  years  1915,  1916  and  1917,  and  that  the  board  of 
review  properly  assessed  the  credits  which  she  owned  during  these 
years  but  which  were  omitted  from  the  assessment  for  the  respective 
years. 

The  Circuit  Court  properly  dismissed  the  bill  for  want  of  equity, 
and  its  decree  is  affirmed. 

Decree  affirmed. 


SUNDAY  LAKE  IRON  CO.  v.  WAKEFIELD. 
Supreme  Couet  of  Michigan.    1915. 

[Reported  186  Mich.  626.] 

KuHN^  J.  This  action  is  brought  in  assumpsit  to  recover  from 
the  defendant  $31,910.45  in  taxes  on  its  property  for  the  year  1911, 
paid  by  the  plaintiff  under  protest.  At  the  conclusion  of  the  testi- 
mony, the  trial  court  directed  a  verdict  for  the  defendant  of  no 
cause  of  action,  and,  Judgment  being  entered  thereon,  plaintiff  brings 
the  case  to  this  court  for  review  by  writ  of  error. 

The  property  of  the  plaintiff  was  assessed  in  the  years  1910  and 


SECT,   ill.]  SUNDAY   LAKE   IRON    CO.    U.    WAKEFIELD.  1 'J  1 

1911  by  the  township  supervisor  at  $65,000.  In  1911,  the  board 
of  State  tax  cuniinissioners,  acting  under  authority  of  legislative 
enactment  (Act  No.  114,  Pub.  Acts  1911),  employed  an  expert  min- 
ing engineer,  .Mr.  James  K.  Finlay,  of  New  York  City,  to  assist  it 
in  malving  an  appraisid  of  the  value  of  the  mining  properties  through- 
out the  ytate.  Mr.  Finlay,  assisted  by  Dr.  C.  K.  Leith,  professor 
of  geology  in  the  University  of  Wisconsin,  and  others,  made  an  in- 
vestigation of  these  properties  extending  over  a  period  of  three 
months,  and  made  a  report  to  the  board  of  State  tax  commissioners 
with  reference  thereto  on  August  18,  1911,  which  report  contained 
a  valuation  of  the  plaintilf's  property.  The  method  pursued  by  !Mr. 
Finlay  and  his  assistants  in  making  this  appraisal  is  set  forth  and 
commented  upon  in  the  opinion  of  this  court  written  by  Mr.  Justico- 
Ostrander,  in  the  case  of  Newj)ort  Mining  Co.  v.  Citv  of  Ironwood, 
185  Mich.  G68  (152  N.  W.  1088).  Mr.  Finlay's  estimate  of  the 
value  of  the  property  of  the  plaintiff  company  was  $1,460,000. 

At  a  heading  by  the  State  board  of  tax  commissioners  in  the  vil- 
lage of  Bessemer  in  October,  1911,  held  for  the  purpose  of  reviewing 
the  assessments  of  mining  properties  in  the  township  of  Wakefield, 
the  board  raised  the  assessment  of  plaintiff's  property  from  $65,000 
to  $1,071,000.  At  this  hearing  the  plaintiff,  by  its  representative, 
objected  to  the  assessment  on  the  grounds  that : 

First,  the  valuation  w-as  grossly  in  excess  of  the  true  cash  value; 
second,  the  Finlay  method  of  determining  the  value  was  contrary  to 
the  manner  in  which  other  property  was  assessed  throughout  the 
State;  and,  third,  it  was  not  proportionate  to  the  assessment  of  other 
property  generally  in  Wakefield  township. 

The  claims  that  are  now  urged  by  counsel  for  appellant  are  stated 
by  them  in  their  brief  as  follows: 

"  (1)  That  the  said  board  committed  a  fraud  upon  the  rights  of 
the  plaintiff  in  wilfully  raising  the  assessment  of  its  property  to. an 
amount  in  excess  of  its  true  value,  while  at  the  same  time  with 
full  knowledge  of  the  general  underassessment  of  other  property  it 
w^rongfully  refused  to  raise  or  increase  at  all  the  assessment  of  such 
other  property,  with  the  purpose  and  effect  of  making  the  plaintiff 
pay  more  than  its  just  proportion  of  the  taxes  for  the  year  1913. 

"  (2)  That  the  action  of  the  State  board  here  complained  of  re- 
sulted in  denying  to  the  plaintiff  the  equal  protection  of  the  laws  of 
the  State  of  IMichigan,  and  in  sul)stance  and  effect  took  the  plain- 
tiff's property  without  due  process  of  law,  in  violation  of  the  provi- 
sions of  the  fourteenth  amendment  to  the  Constitution  of  the  United 
States. 

"  (3)  That  the  board  of  State  tax  commissioners  wilfully  and 
fraudulently  imposed  upon  the  property  of  the  plaintiff  an  assessed 
valuation  grossly  in  excess  of  its  true  cash  value. 

*'  (4)  That  the  plaintiff  is  entitled  on  this  record  to  have  judg- 
ment entered  in  its  favor." 

In  general,  it  is  plaintiff's  claim  that  Mr.  Finlay  obtained  his 
results  without  personal  examination  and  acted  largely  on  informa- 
tion derived  from  maps  and  knowledge  oht^ained  from  Mr.   Leith, 


192  SU^'DAY   LAKE  IKOX   CO.    V.   WAKEFIELD.  [ciIAr.    II. 

his  assistant,  who  did  visit  the  mine,  and  that  acting  upon  this  in- 
formation he  estimated  that  the  ore  deposit  in  the  Sunday  Lake 
and  Brotherton  mines  —  the  latter  adjoins  the  former  on  the  west  — 
contained  3,500,000  tons,  1,500,000  of  which  he  judged  were  in  the 
Sunday  Lake  propert3\  Witnesses  were  produced  on  the  part  of  the 
plaintiff  who  testified  that  the  deposit  in  the  plaintiff's  mine  could 
not  be  expected  to  exceed  400,000  tons,  and  that  its  value  was  not 
over  $550,000,  and  on  the  trial  a  map  was  produced  showing  a  dyke 
which  underlaid  the  Brotherton  mine  and  dipped  toward  the  east, 
below  wliich  drilling  had  discovered  no  ore.  There  was  evidence 
that  the  approach  to  this  dyke  in  the  Brotherton  mine  had  ])een 
indicated  by  an  increasing  amount  of  non-Bessemer  ore,  and  that 
subsequent  developments  in  1912  showed  that  the  Brotherton  mine 
did  not  bear  out  the  expectations  of  1911,  one  of  tlie  plaintiff's 
witnesses  saying  it  had  run  out ;  and  also  that  on  the  twentieth  level 
in  the  Brotherton  mine  (the  lowest  level  in  1911)  the  dyke  was 
running  in  a  downwardly  direction,  but,  at  the  intersection  of  the 
twent\'-first  level,  reached  in  1912,  it  had  changed  its  course  to  a 
more  horizontal  direction,  the  engineer  who  had  prepared  the  map 
saying  that  it  was  flattening  rapidly  toward  the  east.  Coupling  this 
evidence  with  the  fact  that  the  amount  of  non-Bessemer  ore  was  in- 
creasing rapidly  in  the  Sunday  Lake  mine,  the  plaintiff  contends 
that  it  is  wellnigh  certain  that  the  dyke  will  soon  be  encountered 
and  the  ore  exhausted  in  the  Sunday  Lake  mine. 

It  is  defendant's  claim  that  the  record  shows  that  these  claims 
on  the  part  of  the  plaintiff  are  met  by  the  testimony  of  Mr.  Finlay, 
who  said  that  in  making  his  valuation  he  had  considered  the  pres- 
ence of  the  dyke,  and  that  the  ore  body  had  been  showing  an 
enlargement  in  the  Sunday  Lake  property  which  would  make  un- 
necessary the  depth  assumed  by  the  plaintiff  to  be  required  to  de- 
velop 1,500,000  tons ;  also,  the  testimony  of  Dr.  Leith,  who  said  that 
a  subsequent  examination  of  the  mine  in  1912  did  not  modif}'',  in 
his  opinion,  the  value  fixed  by  Mr.  Finlay;  also,  the  admission  of 
plaintiff's  witness  Crowell,  a  mining  engineer,  who  stated  that  he 
thought  the  dyke  would  eventually  get  to  Sunday  Lake  mine,  but 
"  just  what  angle  it  will  assume  when  it  comes  there  I  cannot  say." 

In  the  opinion  of  this  court  in  the  Newport  ]\Iining  Company 
Case,  supra,  we  have  discussed  and  determined  the  propriety  of  the 
Finlay  method  of  appraising  mining  property  and  of  the  use  of 
such  an  appraisal  by  the  State  board  of  tax  commissioners  in  review- 
ing the  assessments.  Indeed,  in  this  case  no  serious  criticism  is  made 
of  that  method  of  appraisal,  and  it  is  said  that  it,  ^'  when  based 
upon  correct  factors  and  assumptions,  might  produce  reasonably 
satisfactory-  results."  It  is  insisted,  however,  that,  because  it  was 
hastily  and  superficially  applied  in  the  instant  case,  it  resulted  in 
a  legal  fraud,  in  that  the  property  of  the  plaintiff  company  was  as- 
sessed grossly  in  excess  of  its  true  cash  value.  It  is  urged  that,  as 
a  matter  of  law,  the  proof  of  fraud  does  not  require  the  establish- 
ment of  an  evil  or  vicious  intent  on  the  part  of  the  State  board  of 
tax  commissioners,  and  that  a^l  that  it  is  necessary  to  show  is  that 


SECT.    III.]  SUNDAY  LAKE  IKON'   CO.    V.   WAKEFIELD.  193 

the  act  in  question  was  wrongful  and  that  it  was  intentionally  done, 
and  that  if  its  result  was  to  produce  injury  it  is  fraudulent  in  tlie 
eye  of  the  law. 

Witli  reference  to  this  claim,  the  learned  trial  judge  in  his  charge 
said: 

"■  We  find  that  the  State  board  of  tax  commissioners  took  these 
figures  of  Mr.  Finlay  of  $1,400,000  and  considered  tlicm,  and  con- 
sidered the  method  by  which  he  placed  the  value  upon  the  mine, 
and  then  made  a  reduction  of  approximately  $388,000  from  those 
figures,  making  the  assessment  as  fixed  by  the  State  board  of  tax 
commissioners  at  $1,072,000;  the  State  board  of  tax  commissioners 
having  raised  the  property  from  $65,000  to  $1,072,000.  The  im- 
mense difference  between  ^Mr.  Finlay's  figures  and  the  State  board 
of  tax  commissioners,  approximately  $388,000,  shows  conclusively 
that  they  did  not  accept  all  of  his  figures,  but  made  an  enormous 
allowance  from  his  figures;  in  fact,  they  cut  them  approximately 
26  per  cent.,  so  that  the  State  board  of  tax  commissioners  assessed 
this  property  at  26  per  cent  below  its  cash  value  as  fixed  by  Mr. 
Finlay. 

"  I  find  no  evidence  in  this  case  which  would  justify  the  court 
in  arriving  at  a  conclusion  that  the  State  board  of  tax  commissioners 
acted  fraudulently  towards  this  plaintiff,  or  unjustly.  The  evidence 
all  indicates  that  they  used  their  best  judgment  and  their  honest 
endeavors,  assisted  by  the  State,  in  having  this  expert  employed, 
and,  after  an  expenditure  of  many  thousands  of  dollars  in  getting 
this  information,  I  think  there  is  but  one  conclusion,  and  that  is 
that  the  State  board  of  tax  commissioners  acted  fairly,  honestly,  and 
justly  towards  this  plaintiff  in  arriving  at  this  valuation  upon  the 
property  in  question,  and  there  is  nothing  to  justify  the  court  in 
setting  aside  their  action  and  finding  a  verdict  in  favor  of  the  plain- 
tiff. I  know  of  no  way  by  which  a  more  accurate  or  just  method 
could  be  found  for  getting  at  the  value  of  these  mines." 

The  law  in  this  State  Avith  reference  to  fraudulent  overvaluation 
for  taxation  purposes  has  recently  had  the  consideration  of  this 
court,  in  the  case  of  Island  Mill  Lumber  Co.  v.  City  of  Alpena,  176 
Mich.  575,  579  (142  X.  W.  770),  in  which  Mr.  Justice  Steere,  in 
speaking  for  the  court,  said : 

"  Counsel  for  plaintiff  contend  that  the  question  of  fraud  is  never 
a  question  of  law,  but  is  always  held  by  all  courts  to  be  a  question 
of  fact  for  the  jury,  citing  numerous  cases.  This  is  unquestionably 
correct,  when  there  is  in  the  case  legitimate  evidence  of  fraud  to 
raise  the  issue,  but  whether  or  not  there  is  any  probative  evidence 
of  fraud  in  the  case  is  a  question  of  law  for  the  court.  Fraud 
is  never  presumed;  tliere  must  be  evidence  tending  to  prove  it. 
The  law  upon  tlie  question  of  fraudulent  overvaluation  for  taxation 
purposes  is  well  settled  in  this  State.  It  must  be  something  more 
than  an  honest  mistake  in  judgment  to  defeat  a  tax.  In  3  Cooley 
on  Taxation  (3d  Ed.),  p.  1159,  it  is  said: 

" '  An  assessment  is  not  fraudulent  merely  because  of  being  exces- 
sive, if  the  assessors  have  not  acted  from  improper  motive;  but,  if 


194  su>;day  lake  leon  co.  v.  wakefii:i.d.  Lciiap.  ii. 

it  is  purposely  made  too  high  through  prejudice  or  a  reckless  dis- 
regard of  duty  in  opposition  to  what  must  necessarily  be  the  judg- 
ment of  all  competent  persons,  .  .  .  the  case  is  a  plain  one  for  the 
equitable  remedy  by  injunction.' 

''  In  such  case  the  tax  is  necessarily  invalid. 

''  The  above  rule  has  been  quoted  by  this  court  with  approval  and 
consistently  followed.  The  subject  is  exhaustively  discussed,  with 
citation  of  numerous  authorities,  in  Pioneer  Iron  Co.  v.  City  of 
Xegaunee,  116  Mich.  430  (74  N.  W.  700),  and  City  of  Muskegon 
V.  Boyce,  123  Mich.  535  (82  N.  W.  264).'' 

See,  also,  City  of  Port  Huron  v.  A\" right,  150  Mich.  279  (114 
N.  W.  76). 

After  a  careful  consideration  of  this  record  and  the  plaintiff's 
claims,  and  considering  all  the  testimony  produced  in  the  light  most 
favorable  to  the  plaintiff,  without  determining  the  relevancy  of  such 
testimony  as  was  admitted  to  show  changes  in  conditions  subsequent 
to  the  assessment,  we  cannot  agree  that  there  is  any  evidence  to 
sustain  the  charge  that  the  State  board  of  tax  commissioners,  in 
disregard  of  its  duty,  recklessly  or  intentionally  or  fraudulently 
overvalued  the  plaintiff's  property  for  taxation.  Applying  the  rule 
cited  above  in  the  Island  Mill  Lumber  Co.  Case  from  Cooley  on 
Taxation,  it  cannot  be  said  that  the  State  board  of  tax  commissioners 
acted  in  "reckless  disregard  of  duty,  in  opposition  to  what  must 
necessarily  be  the  judgment  of  all  competent  persons."  In  fixing 
the  value  of  this  mine  the  State  board  did  use  the  information 
produced  for  itby  disinterested  experts  of  a- high  standing,  in  accord- 
ance with  authority  granted  by  an  act  of  the  legislature  of  this  State. 
The  figure  arrived  at  may  possibly  have  been  in  fact  too  high  or  too 
low,  but  Mr.  Shields,  one  of  the  commissioners,  who  himself  had 
charge  of  the  review,  and  was  familiar  with  the  development  of  iron 
mines  on  the  Gogebic  range  and  its  ore  formation,  we  are  convinced, 
acted  honestly,  fairly,  and  in  good  faith  upon  all  the  informa- 
tion he  had  at  hand,  and  made  a  proper  and  legal  assessment  in  fix- 
ing the  value  of  plaintiff's  mine  in  the  way  that  he  did. 

The  claim  is  also  made,  as  was  made  in  the  Newport  Case,  supra, 
that  the  value  of  one  class  of  property  —  mining  property  —  was 
raised  and  the  values  of  other  classes  of  property  known  to  be  under- 
valued were  not  raised,  and  that  such  intentional  inequality  of  as- 
sessment constitutes  fraud  and  invalidates  the  tax.  This  is  based 
largely  upon  claimed  admissions  of  Mr.  Shields  of  his  knowledge 
of  the  undervaluation  of  other  property  in  the  State  and  in  that 
locality,  and  the  fact  that  great  increases  were  made  in  the  assess- 
ment of  other  than  mining  property  in  the  year  1912. 

An  examination  of  the  evidence  in  this  record  is  convincing  that 
the  business  of  the  defendant  township  depended  almost  entirely 
upon  the  mining  business,  and  the  mine  of  the  plaintiff  company, 
which  was  one  of  the  largest  mines  in  the  township,  in  1911  was 
assessed  at  the  small  sum  of  $65,000,  although  plaintiff  now  admits 
that  it  is  reasonably  worth  the  sum  of  $450,000.  People,  generally, 
•  at  least,  did  not  know  the  extent  of  the  ore  deposits,  and  it  appears 


SECT.    IV.]  TnE   COLLECTOR    V.    DAY.  195 

that  business  was  dull.  It  further  appears  that  after  the  report  of 
the  Finlay  appraisal  was  made  public,  disclosing  the  value  and 
the  lon<;  life  of  the  mines  in  the  township,  business  conditions  in 
the  village  and  township  of  Wakefield  became  better  and  the  values 
of  property  increased.  These  changed  conditions,  it  may  be  said, 
at  least  in  part,  accounted  for  the  increased  assessments  in  1912, 
and,  as  in  the  Newport  Case,  we  are  in  the  instant  case  unable  to 
find  any  specified  data  in  this  record  to  sustain  the  conclusion  that 
the  nonmining  property  in  the  defendant  township  was  not  assessed 
relatively  as  high  in  1011  as  was  the  mining  property. 

We  are  convinced  that  the  trial  judge  arrived  at  the  proper  con- 
clusion in  directing  a  verdict  for  the  defendant  upon  this  record, 
and  the  judgment  is  therefore  affirmed.^ 

»  Affirmed  by  the  Supreme  Court  of  the  United  States,  247  U.  S.  350. 


SECTION   IV. 
EXEMPTIONS. 


THE  COLLECTOR  v.  DAY. 
Supreme  Court  of  the  United  States.     1870. 

[Reported  11   Wall.  113.] 

Error  to  the  Circuit  Court  for  the  District  of  Massachusetts. 

The  collector  of  the  internal  revenue  of  the  United  States  for  the 
district  of  Massachusetts  assessed  the  sum  of  $61.50  upon  the  salary 
of  J.  M.  Day,  judge  of  the  Court  of  Probate  and  Insolvency,  for  the 
county  of  Barnstable.  Day  paid  the  tax  under  protest,  and  brought 
the  action  below  to  recover  it.  Judgment  was  rendered  for  the 
plaintiff.^ 

Nelsox,  J.  The  case  presents  the  question  whether  or  not  it  is 
competent  for  Congress,  under  the  Constitution  of  the  United  States, 
to  impose  a  tax  upon  the  salary  of  a  judicial  officer  of  a  State  ? 

In  Dobbins  v.  The  Commissioners  of  Erie  County,  16  Peters,  435, 
it  was  decided  that  it  was  not  competent  for  the  legislature  of  a 
State  to  levy  a  tax  upon  the  salar\'  or  emoluments  of  an  officer  of 
the  United  States.  The  decision  was  placed  mainly  upon  the  ground 
that  the  officer  was  a  means  or  instrumentality  employed  for  carry- 
ing into  effect  some  of  the  legitimate  powers  of  the  government, 
which  could  not  be  interfered  with  by  taxation  or  otherwise  by  the 
States,  and  that  the  salary  or  compensation  for  the  service  of  the 
officer  was  inseparably  connected  with  tlie  office;  that  if  the  officer, 
as  such,  was  exempt,  the  salary  assigned  for  his  support  or  main- 
tenance while  holding  the  office  was  also,  for  like  reasons,  equally 
exempt. 

The  cases  of  ^fcCulloch  v.  Maryland,  4  Wheaton,  316,  and  Weston 
V.  Charleston,  2  Peters,  449,  were  referred  to  as  settling  the  principle 

^  This  short  statement  of  facts  is  substituted  for  that  of  the  reporter. 


196  THE    COLLECTOR    V.    DAY.  [ciIAP.    II. 

that  governed  the  case,  namely,  ''that  the  State  governments  can- 
not lay  a  tax  upon  the  constitutional  means  employed  by  the  gov- 
ernment of  the  Union  to  execute  its  constitutional  powers/' 

The  soundness  of  this  principle  is  happily  illustrated  bv  the  Chief 
Justice  in  McCulloch  v.  Maryland,  4  Wheaton,  432."  "It  the 
States,"  he  observes,  ''  may  tax  one  instrument  employed  by  the 
government  in  the  execution  of  its  powers,  they  may  tax  any  and 
every  other  instrument.  They  may  tax  the  mail ;  they  may  tax  the 
mint;  they  may  tax  patent-rights;  they  may  tax  judicial  process; 
they  maj'-  tax  all  the  means  employed  by  the  government  to  an  excess 
which  would  defeat  all  the  ends  of  government.'"  "This,"  he  ob- 
serves, "was,  not  intended  by  the  American  people.  They  did  not 
design  to  make  their  government  dependent  on  the  States."  Again, 
lb.  427,  "  That  the  power  of  taxing  it  (the  bank)  by  the  States  may 
be  exercised  so  far  as  to  destroy  it,  is  too  obvious  to  be  denied." 
And,  in  Weston  v.  The  City  of  Charleston,  he  observes,  2  Peters, 
466.  "If  the  right  to  impose  the  tax  exists,  it  is  a  right  which,  in 
its  nature,  acknowledges  no  limits.  It  may  be  carried  to  any  extent 
within  the  jurisdiction  of  the  State  or  corporation  which  imposes 
it  which  the  will  of  each  State  and  corporation  may  prescribe." 

It  is  conceded  in  the  case  of  McCulloch  v.  Maryland,  that  the 
power  of  taxation  by  the  States  was  not  abridged  by  the  grant  of  a 
similar  power  to  the  government  of  the  Union;  that  it  was  retained 
by  the  States,  and  that  the  power  is  to  be  concurrently  exercised  by 
the  two  governments ;  and  also  that  there  is  no  express  constitutional 
prohibition  upon  the  States  against  taxing  the  means  or  instrumen- 
talities of  the  general  government.  But,  it  was  held,  and,  we  agree 
properly  held,  to  be  prohibited  by  necessary  implication;  otherwise, 
the  States  might  impose  taxation  to  an  extent  that  would  impair, 
if  not  wholly  defeat,  the  operations  of  the  Federal  authorities  when 
acting  in  their  appropriate  sphere. 

These  views,  we  think,  abundantly  establish  the  soundness  of  the 
decision  of  the  case  of  Dobbins  v.  The  Commissioners  of  Erie,  which 
determined  that  the  States  were  prohibited,  upon  a  proper  construc- 
tion of  the  Constitution,  from  taxing  the  salary  or  emoluments  of 
an  officer  of  the  government  of  the  United  States.  And  we  shall 
now  proceed  to  show  that,  upon  the  same  construction  of  that  in- 
strument, and  for  like  reasons,  that  government  is  prohibited  from 
taxing  the  salary  of  the  judicial  officer  of  a  State. 

It  is  a  familiar  rule  of  construction  of  the  Constitution  of  the 
Union,  that  the  sovereign  powers  vested  in  the  State  governments 
by  their  respective  constitutions,  remained  unaltered  and  unim- 
paired, except  so  far  as  they  were  granted  to  the  government  of  the 
United  States.  That  the  intention  of  the  framers  of  the  Constitu^ 
tion  in  this  respect  might  not  be  misunderstood,  this  rule  of  inter- 
pretation is  expressly  declared  in  the  tenth  article  of  the  amend- 
ments, namely :  "  The  powers  not  delegated  to  the  United  States  are 
reserved  to  the  States  respectively,  or,  to  the  people."  The  govern- 
ment of  the  United  States,  therefore,  can  claim  no  powers  which  are 
not  granted  to  it  by  the   Constitution,   and  the  powers   actually 


SECT.    IV.]  THE    COLLECTOE     V.    DAY.  197 

granted  must  be  such  as  are  expressly  given,  or  given  by  necessary 
implication. 

The  general  government,  and  the  States,  although  both  exist 
within  the  same  territorial  limits,  are  separate  and  distinct  sover- 
eignties, acting  separately  and  independently  of  each  other,  within 
their  respective  spheres.  The  former  in  its  appropriate  sphere  is 
supreme;  but  the  States  within  the  limits  of  their  powers  not 
granted,  or,  in  the  liinguage  of  the  Tenth  Amendment,  ''reserved," 
are  as  independent  of  the  general  government  as  that  government 
within  its  sphere  is  independent  of  the  States. 

The  relation  existing  between  the  two  governments  are  well  stated 
by  the  present  Chief  Justice  in  the  case  of  Lane  County  v.  Oregon, 
7  "Wallace,  76.  "Both  the  States  and  the  United  States,"  he  ob- 
served, "  existed  before  the  Constitution.  The  people,  through  that 
instrument,  established  a  more  perfect  union,  but  substituting  a 
National  government,  acting  with  ample  powers  directly  upon  the 
citizens,  instead  of  the  Confederate  government,  which  acted  with 
powers  greatly  restricted,  only  upon  the  States.  But,  in  many  of 
the  articles  of  the  Constitution,  the  necessary  existence  of  the  States, 
and  within  their  proper  spheres,  the  independent  authority  of  the 
States,  are  distinctly  recognized.  To  them  nearly  the  whole  charge 
of  interior  regulation  is  committed  or  left;  to  them,  and  to  the  peo- 
ple, all  powers,  not  expressly  delegated  to  the  National  government, 
are  reserved.'^  Upon  looking  into  the  Constitution  it  will  be  found 
that  but  a  few  of  the  articles  in  that  instrument  could  be  carried 
into  practical  effect  without  the  existence  of  the  States. 

Two  of  the  great  departments  of  the  government,  the  executive 
and  legislative,  depend  upon  the  exercise  of  the  powers,  or  upon  the 
people  of  the  States.  The  Constitution  guarantees  to  the  States  a 
republican  form  of  government,  and  protects  each  against  invasion 
or  domestic  violence.  Such  being  the  separate  and  independent 
condition  of  the  States  in  our  complex  system,  as  recognized  by  the 
Constitution,  and  the  existence  of  which  is  so  indispensable,  that, 
without  them,  the  general  government  itself  would  disappear  from 
the  family  of  nations,  it  would  seem  to  follow,  as  a  reasonable,  if  not 
a  necessary  consequence,  tliat  the  means  and  instrumentalities  em- 
ployed for"  carrying  on  the  operations  of  their  governments,  for  pre- 
serving their  existence,  and  fulfilling  the  high  and  responsible  duties 
assigned  to  them  in  the  Constitution,  should  be  left  free  and  un- 
impaired, should  not  be  liable  to  be  crippled,  much  less  defeated  by 
the  taxinir  power  of  another  government,  which  power  acknowledges 
no  limits  but  the  will  of  the  legislative  body  imposing  the  t<ax.  And, 
more  especially,  those  means"  and  instrumentalities  which  are  the 
creation  of  their  soverei.cm  and  reserved  rights,  one  of  which  is  the 
establishment  of  the  judicial  department,  and  the  appointment  of 
officers  to  administer  their  laws.  Without  this  power,  and  the  ex- 
ercise of  it,  we  risk  nothing  in  saying  that  no  one  of  the  States  under 
the  form  of  government  guaranteed  by  the  Constitution  could  long 
preserve  its  existence.  A  despotic  government  might.  TVe  have  said 
that  one  of  the  reserved  powers  was  that  to  establish  a  judicial  de- 


198  THE    COLLECTOR   V.    DAY.  [cHAP.    IL 

partment ;  it  would  have  been  more  accurate,  and  in  accordance  with 
the  existing  state  of  things  at  tlie  time,  to  have  said  the  power  to 
maintain  a  judicial  department.  All  of  the  thirteen  States  were  in 
the  possession  of  this  power,  and  had  exercised  it  at  the  adoption  of 
the  Constitution ;  and  it  is  not  pretended  that  any  grant  of  it  to  the 
general  government  is  found  in  that  instrument.  It  is,  therefore, 
one  of  the  sovereign  powers  vested  in  the  States  by  their  constitu- 
tions, which  remained  unaltered  and  uuimpaired,  and  in  respect 
to  which  the  State  is  as  iiiuependent  of  the  general  government  as 
that  government  is  independent  of  the  States. 

The  supremacy  of  the  general  government,  therefore,  so  much  re- 
lied on  in  the  argument  of  the  counsel  for  the  plaintiff  in  error,  in 
respect  to  the  question  before  us,  cannot  be  maintained.  The  two 
governments  are  upon  an  equality,  and  the  question  is  whether  the 
power  "  to  lay  and  collect  taxes "  enables  the  general  government  to 
tax  the  salary  of  a  judicial  officer  of  the  State,  which  officer  is  a 
means  or  instrumentality  employed  to  carry  into  execution  one  of  its 
most  important  functions,  the  administration  of  the  laws,  and  which 
concerns  the  exercise  of  a  right  reserved  to  the  States? 

We  do  not  say  the  mere  circumstance  of  the  establishment  of  the 
judicial  department,  and  the  appointment  of  officers  to  administer 
the  laws,  being  among  the  reserved  powers  of  the  State,  disables  the 
general  government  from  levying  the  tax,  as  that  depends  upon  the 
express  power  "  to  lay  and  collect  taxes, '^  but  it  shows  that  it  is  an 
original  inherent  power  never  parted  with,  and,  in  respect  to  which, 
the  supremacy  of  that  government  does  not  exist,  and  is  of  no  im- 
portance in  determining  the  question;  and  further,  that  being  an 
original  and  reserved  power,  and  the  judicial  officers  appointed  under 
it  being  a  means  or  instrumentality  employed  to  carry  it  into  effect, 
the  right  and  necessity  of  its  unimpaired  exercise,  and  the  exemp- 
tion of  the  officer  from  taxation  by  the  general  government  stand 
upon  as  solid  a  ground,  and  are  maintained  by  principles  and  reasons 
as  cogent  as  those  which  led  to  the  exemption  of  the  Federal  officer 
in  Dobbins  v.  The  Commissioners  of  Erie  from  taxation  by  the 
State ;  for,  in  this  respect,  that  is,  in  respect  to  the  reserved  powers, 
the  State  is  as  sovereign  and  independent  as  the  general  government. 
And  if  the  means  and  instrumentalities  employed  by  that  govern- 
ment to  carry  into  operation  the  powers  granted  to  it  are,  necessarily, 
and,  for  the  sake  of  self-preservation,  exempt  from  taxation  by  the 
States,  why  are  not  those  of  the  States  depending  upon  their  re- 
served powers,  for  like  reasons,  equally  exempt  from  Federal  taxa- 
tion? Their  unimpaired  existence  in  the  one  case  is  as  essential 
as  in  the  other.  It  is  admitted  that  there  is  no  express  provision  in 
the  Constitution  that  prohibits  the  general  government  from  taxing 
the  means  and  instrumentalities  of  the  States,  nor  is  there  any  pro- 
hibiting the  States  from  taxing  the  means  and  instrumentalities 
of  that  government.  In  both  cases  the  exemption  rests  upon  neces- 
sary implication,  and  is  upheld  by  the  great  law  of  self-preserva- 
tion ;  as  any  government,  whose  means  employed  in  conducting  its 
operations,  if  subject  to  the  control  of  another  and  distinct  govern- 


SECT.    IV.]  NOKTIIERN    TACIFIC    KAILKOAD    V.    MYEKS.  109 

ment,  can  exist  only  at  the  mercy  of  that  government.     Of  what 
avail  are  these  means  if  another  pcnver  may  tax  tliem  at  discretion? 

But  we  are  referred  to  the  V'eazie  Bank  v.  Fenno,  8  Wallace,  533, 
in  support  of  this  power  of  taxation.  That  case  furnishes  a  strong 
illustration  of  tlie  position  taken  by  the  Chief  Justice  in  McCuUoch 
V.  Maryland,  namely,  "  That  the  power  to  tax  involves  the  power  to 
destroy." 

Tiie  power  involved  was  one  which  had  been  exercised  by  the 
States  since  the  foundation  of  the  government,  and  had  been,  after 
the  lapse  of  three-quarters  of  a  century,  annihilated  from  excessive 
taxation  by  tlie  general  government,  just  as  the  judicial  office  in  the 
present  case  miglit  be,  if  subject,  at  all,  to  taxation  by  that  govern- 
ment. But,  notwithstanding  the  sanction  of  this  taxation  by  a 
majority  of  the  court,  it  is  conceded,  in  the  opinion,  that  "the  re- 
served rights  of  the  States,  such  as  the  right  to  pass  laws;  to  give 
effect  to  laws  through  executive  action;  to  administer  justice 
through  the  courts,  and  to  employ  all  necessary  agencies  for  legiti- 
mate purposes  of  State  government,  are  not  proper  subjects  of  the 
taxing  power  of  Congress."  This  concession  covers  the  case  before 
us,  and  adds  the  authority  of  this  court  in  support  of  the  doctrine 
which  we  have  endeavored  to  maintain. 

Judgment  affirmed. 

Bradley^  J.,  dissented. 


NOKTHERN  TACIFIC  RAILWAY  v.  MYERS. 
Supreme  Court  of  the  United  States.     1899. 

[Reported  172  U.  8.  589.] 

McKexna,  J.  The  averments  in  the  bill  of  complaint  and  the 
stipulation  of  facts  show  a  controversy  between  the  railroad 
company  and  the  Interior  Department  as  to  the  character  of  the 
lands,  whether  mineral  or  non-mineral,  taxed  by  the  State  of  ^Ion- 
tana,  and  the  company  avers  "that  at  the  time  of  said  attempted 
assessments  and  tax  levies  said  lands  .  .  .  had  not  been  and  are  not 
now  certified  or  patented  to  said  railroad  compan}^  and  the  said 
lands  were  not  ascertained  or  determined  to  be  a  part  of  the  lands 
granted  to  said  company,  nor  were  they  segregated  from  the  public 
lands  of  the  United  States,  and  tlie  said  railroad  company  had  and 
has  but  a  potential  interest  therein."  And  part  of  the  relief  prayed 
for  was  "  that  the  lands  be  adjudged  not  subject  to  assessment  and 
taxation  by  said  county  of  Jefferson  or  by  the  State  of  Montana  for 
the  year  189-i,  and  until  the  United  States  shall  issue  to  said  rail- 
road company  patents  therefor." 

A  similar  claim  was  denied  by  the  Circuit  Court  of  Appeals  for 
the  Ninth  Circuit  in  ISTorthern  Pacific  Railroad  v.  "Wright,  7  U.  S. 
App.  503,  and  by  this  court  in  Central  Pacific  Railroad  v.  Nevada, 
162  U.  S.  512.  It  is,  however,  now  conceded  that  the  railroad  has 
a  taxable  interest,  counsel  for  appellant  saying : 


200  ^'OETHEEX  PACIFIC  KAILEOAD  V.  MYEES.  [ciIAP.  II. 

"  The  question  for  decision  is  not  whether  the  railway  company 
has  any  interest  in  its  grant,  or  in  the  hinds  in  question,  which  may 
be  subjected  to  some  form  of  taxation ;  but  whether  the  lands  them- 
selves are  taxable;  whether  the  present  assessment  which  is  on  the 
lands  themselves  can  be  sustained.  We  may  well  concede  that  the 
taxing  power  is  broad  enough  to  reach  in  some  form  the  interest  of 
the  railway  company  in  its  grant ;  that  interest  becomes  confessedly 
a  vested  interest  upon  construction  of  the  road.  It  then  becomes 
property,  and  may  well  be  held  subject  to  some  form  of  taxation, 

"'But  here  the  legislature  authorizes  a  tax  upon,  and  the  assessor 
makes  an  assessment  upon,  the  land  itself  by  specific  description; 
the  whole  legal  title  to  each  parcel  being  specifically  and  separately 
assessed.  When  the  plain  fact  is,  that  neither  the  assessor  or  the 
railway  company  can  place  its  hand  on  a  single  specific  parcel  and 
say  whetlier  it  belongs  to  the  company  or  to  the  United  States." 

The  question  which  was  submitted  therefore  by  the  stipulation, 
namelj',  "whether  the  lands  described  in  the  bill  were  subject  to 
taxation  under  the  laws  of  the  United  States  and  of  the  State  of 
Montana,"  if  not  evaded  by  the  concession  of  appellant,  has  changed 
its  form;  but  even  in  the  new  form  it  seems  to  have  the  same  foun- 
dation as  the  contention  rejected  in  the  Nevada  case,  supra,  that  be- 
cause title  may  not  attach  to  some  of  the  lands  it  does  not  attach 
as  to  any.    Whether  it  has  such  foundation  we  will  consider. 

In  Eailway  Company  v.  Prescott,  16  Wall.  603 ;  Eailway  Com- 
pany V.  McShane,  22  Wall.  444,  and  Northern  Pacific  Eailroad 
Company  v.  Traill  County,  115  U.  S.  600,  it  was  decided  that  lands 
sold  by  the  United  States  might  be  taxed  before  they  had  parted 
with  the  legal  title  by  issuing  a  patient;  but  this  principle,  it  was 
said,  must  be  understood  to  be  applicable  only  to  cases  where  the 
right  to  the  patent  was  complete,  and  the  equitable  title  was  fully 
vested  in  the  party  without  anything  more  to  be  paid  or  any  act  to 
be  done  going  to  the  foundation  of  his  right.  In  the  first  case  the 
court  said  two  acts  remained  to  be  done  which  might  wholly  defeat 
the  right  to  the  patent:  (1)  the  payment  of  the  cost  of  surveying; 
(2)  a  right  of  preemption  which  would  accrue  if  the  company  did 
not  dispose  of  the  lands  wdthin  a  certain  time.  The  dependency 
of  the  right  of  taxation  on  the  first  condition  was  affirmed  with  the 
principle  announced  in  Eailway  Company  v.  McShane.  The  de- 
pendency of  the  right  of  taxation  on  the  second  ground  was  expressly 
overruled. 

Embarrassment  to  the  title  of  the  United  States  by  a  sale  of  the 
land  for  taxes  seems  to  have  been  the  concern  and  basis  of  those 
cases.  This  embarrassment  was  relieved,  and  Congress  permitted 
taxation  by  the  act  of  July  10,  1886,  c.  764.  24  Stat.  143.  By  that 
act  it  is  pro\dded :  "  That  no  lands  granted  to  any  railroad  corpora- 
tion by  any  act  of  Congress  shall  be  exempt  from  taxation  by  States, 
Territories  and  municipal  corporations  on  account  of  the  lien  of 
the  United  States  upon  the  same  for  the  costs  of  surveying,  selecting 
and  conve}ing  the  same,  or  because  no  patent  has  been  issued  there- 
for; but  tliis  provision  shall  not  apply  to  lands  unsurveyed:  Pro- 


SECT.    IV.J  ^'OETHERX    PACIFIC    KAILEOAD    V.    MYEES.  201 

vided,  That  any  such  land  sold  for  taxes  shall  be  taken  by  the  pur- 
chaser subject  to  the  lien  for  costs  of  surveying,  selecting  and  con- 
veying, to  be  paid  in  such  manner  by  the  purchaser  as  the  Secretary 
of  the  Interior  may  by  rule  provide,  and  to  all  liens  of  the  United 
States,  all  mortgages  of  the  United  States  and  all  riglits  of  the 
United  States  in  respect  to  such  lands:  Provided  further,  That  this 
act  shall  apply  only  to  lands  situated  opposite  to  and  coterminous 
with  completed  portions  of  said  roads  and  in  organized  counties: 
Provided  further,  That  at  any  sale  of  lands  under  the  provisions 
of  this  act  the  United  States  may  become  the  preferred  purchaser, 
and  in  such  case  the  land  sold  shall  be  restored  to  the  public  domain 
and  disposed  of  as  provided  by  the  laws  relating  thereto.'* 

Tills  act  was  interpreted  in  Central  Pacific  Railroad  Co.  v.  Ne- 
vada, supra.  The  lands  involved  were  classified  in  the  opinion  as 
follows:  (1)  those  patented;  (2)  those  unsurveyed;  (3)  those  sur- 
veyed but  unpatented,  upon  which  the  cost  of  surveying  had  been 
paid;  and  (4)  like  lands  upon  which  the  cost  of  survey  had  not  been 
paid.  Applying  the  statute,  ^Mr.  Justice  Brown,  speaking  for  the 
court,  said:  "The  principal  dispute  is  with  regard  to  the  fourth 
class.  ...  In  view  of  the  statute,  it  is  difficult  to  see  how  these 
lands,  which  are  the  very  ones  provided  for  by  the  statute,  can  escape 
taxation  if  the  State  chooses  to  tax  them." 

This  case  establishes  that  the  State  may  tax  the  surveyed  lands, 
mineral  or  agricultural,  within  the  place  limits  of  the  grant,  and 
there  is  nothing  in  the  case  nor  its  principle  which  limits  the  assess- 
ment to  an  interest  less  than  the  title;  that  distinguishes  the  lands 
from  a  claim  to  them.  The  statute  of  Nevada  defined  the  term 
"real  estate"  to  include  "the  ownership  of,  or  claim  to,  or  posses- 
sion of,  or  right  of  possession  to  any  lands ; "  and  the  Supreme  Court 
of  the  State  had  decided  that  to  constitute  a  possessory  claim  actual 
possession  was  necessary,  and,  on  this  account,  distinguished  in  some 
way  surveyed  from  unsurveyed  lands.  It  was  urged  that  the  dis- 
tinction was  not  justified,  and  that  the  necessity  of  actual  possession' 
applied  alike  to  both  kinds  and  exempted  both  kinds  from  taxation, 
and  hence  it  was  insisted  there  was  notliing  to  tax  unless  the  title 
was  taxed,  and  that  this  could  not  be  done  under  the  decisions  of  this 
court.  To  this  contention  the  opinion  replied  that  how  the  interest 
of  the  railroad  should  be  defined  was  not  a  Federal  question,  nor  did 
inaptitude  of  definition  by  the  Supreme  Court  of  the  State  or  in  the 
application  of  the  definition  raise  a  Federal  question.  "Taxation 
of  the  lands  by  the  State,"  it  was  said,  "rested  upon  some  theory 
that  the  railroad  had  a  taxable  interest  in  them.  What  that  interest 
was  does  not  concern  us  so  long  as  it  appears  that,  so  far  as  Con- 
gress is  concerned,  express  authority  was  given  to  tax  the  lands." 

If  this  case  leaves  us  any  concern  it  is  only  to  inquire  what  assess- 
able interest  passed  by  the  grant.  It  is  not  necessary  to  detail  the 
cases  in  which  this  court  has  held  that  railroad  land  grants  are  in 
prcpsenti  of  land  to  he  afterwards  located.  Their  principle  reached 
the  fullest  effect  and  application  in  De>erot  Salt  Co.  r.  Tarpey.  142 
U.  S.  241,  316,  in  which  it  was  held  thnt  the  legal  title  passed  by 


202  NORTHERN  PACIFIC  RAILROAD  V.  MYERS.  [cHAP.  II, 

such  grants  as  distinguished  from  merely  equitable  interests,  and  an 
action  of  ejectment  was  sustained  by  a  lessee  of  the  Central  Pacific 
Eailroad  Company  before  patent  was  issued.  But  in  Barden  v. 
Northern  Pacific  Eailroad,  15-i  U.  S.  288,  in  a  similar  action  re- 
covery was  denied  to  tlie  Northern  Pacific  Eailroad  Company  on 
the  ground  that  mineral  lands  were  not  conveyed  by  the  grant  to  it, 
but  were  "specifically  reserved  to  the  United  States  and  excepted 
from  the  operations  of  the  grant/' 

The  accommodation  of  these  cases  is  not  difficult.  In  the  Barden 
case  there  was  a  concession  that  the  land  was  mineral,  and  there  was 
an  attempted  recovery  of  valuable  ores.  In  the  Deseret  case  there  was 
no  such  concession,  and  the  primary  effect  of  the  grant  prevailed. 
In  the  case  at  bar  there  is  no  such  concession,  and  the  primary  effect 
of  the  grant  must  prevail.  There  is  no  presumption  of  law  of  what 
kind  of  lands  the  grant  is  composed.  Upon  its  face,  therefore,  the 
relation  of  the  railroad  to  every  part  of  it  is  the  same,  and  on  the 
autbority  of  Deseret  Salt  Co.  v.  Tarpey,  ejectment  may  be  brought 
for  every  part  of  it.  The  action,  of  course,  may  be  defeated,  but 
it  may  prevail,  and  a  title  which  may  prevail  for  the  company  in 
ejectment  surely  may  be  attributed  to  it  for  taxation,  to  be  defeated 
in  the  latter  upon  the  same  proof  or  concession  by  which  it  would  be 
defeated  in  the  former.  An  averment  that  there  is  a  controversy 
about  the  character  of  lands  not  yielded  to,  an  expression  of  doubt 
about  it  not  acted  on,  is  not  sufficient.  This  view  does  not  bring  the 
railroad  company  to  an  unjust  dilemma.  The  company  has  the 
title  or  nothing.  In  response  to  its  obligations  to  the  State,  it  must 
say  which.  If  it  have  the  title  to  any  of  the  lands,  this  title  cannot  be 
diminished  to  a  claim,  or  an  interest  because  it  has  not  or  may  not 
have  title  to  others.  If  there  is  imcertainty,  it  must  be  resolved  by 
the  railroad.  Suppose,  to  use  the  language  of  counsel,  "  Neither 
the  assessor  or  the  railway  company  can  place  its  hand  on  a  single 
specific  parcel  and  say  whether  it  belongs  to  the  company  or  to  the 
United  States."  We  nevertheless  say  again,  as  we  said  by  the  Chief 
Justice  in  Northern  Pacific  Eailroad  v.  Patterson,  154  U.  S.  130, 
132,  "  If  the  legal  or  equitable  title  to  the  lands  or  any  of  them  was 
in  the  plaintiff,  then  it  was  liable  for  the  taxes  on  all  or  some  of 
them,  and  the  mere  fact  that  the  title  might  be  in  controversy  would 
not  appear  in  itself  to  furnish  sufficient  reason  why  the  plaintiff 
should  not  determine  whether  the  lands  or  some  of  them  were  worth 
paying  taxes  on  or  not." 

That  the  Barden  case  does  not  preclude  state  taxation  of  the  lands 
is  also  manifest  from  its  expression.  Mr.  Justice  Field,  who  de- 
livered the  opinion  of  the  court,  in  answer  to  the  contention  that  its 
doctrine  would  have  that  effect,  said :  "  So  also  it  is  said  that  the 
States  and  Territories  through  which  the  road  passes  would  not  be 
able  to  tax  the  property  of  the  company  unless  they  could  tax  the 
whole  property,  minerals  as  well  as  lands.  "We  do  not  see  why  not. 
The  authority  to  tax  the  property  granted  to  the  company  did  not 
give  anthority  to  tax  the  minerals  which  were  not  granted.  The 
property  could  be  appraised  without  including  any  consideration 


SECT.  IV.]      WOECESTER  COUNTY  V.    WOKCESTEE.  203 

of  the  minerals.  The  value  of  the  property,  excluding  the  minerals, 
could  be  as  well  estimated  as  its  value  including  them.  The  prop- 
erty could  be  taxed  for  its  value  of  the  extent  of  the  title  which  is  of 
the  land." 

The  averment  of  the  answer  is  that  this  was  done ;  that  the  lands 
were  assessed  and  taxed  for  their  value  as  agricultural  lands  without 
including  the  minerals  in  them.  The  replication  put  tliis  in  issue 
but  the  stipulation  of  facts  does  not  explicitly  notice  it,  but  prob- 
ably was  intended  to  cover  it  by  the  agreement  that  the  assessment 
was  made  in  the  manner  and  form  required  by  the  laws  of  Montana. 

We  are  referred  to  the  act  of  Congress  of  February  2G,  1895, 
c.  131,  entitled  "An  act  to  provide  for  the  examination  and  classi- 
fication of  certain  mineral  lands  in  the  States  of  Montana  and 
Idaho,"  28  Stat.  683,  as  strengthening  the  contention  of  appellants. 
We  do  not  think  it  does.  It  was  passed  after  the  time  at  which  the 
validity  of  the  assessment  complained  of  must  be  determined.  Be- 
sides, it  docs  not  purport  to  define  the  rights  of  the  railway  com- 
pany in  any  particular  with  which  we  are  now  concerned.  It  fur- 
nishes the  Secretary  of  the  Interior  with  another  instrumentality  — 
not  bringing  the  lands  to  a  different  judgment,  but  to  an  earlier 
judgment. 

Discovering  no  error  in  the  decree  of  the  Circuit  Court  of  Ap- 
peals, it  is 

Affirmed. 

Brewer,  Shieas,  White  and  Peckham,  JJ.,  dissented. 


WORCESTER  COUNTY  v.  WORCESTER. 
Supreme  Judicial  Court  of  ^Massachusetts.     1874. 

[Reported  116  Mass.  193.] 

Devens,  J.  This  is  a  petition  for  a  writ  of  certiorari  to  quash 
the  proceedings  of  the  respondents  in  laying  an  assessment,  under 
the  St.  of  1867,  c.  106,  upon  the  property  of  the  inhabitants  of  the 
county  of  Worcester,  consisting  of  the  court-house  estate  used  for 
holdings  of  the  courts  in  said  county,  and  the  offices  of  the  clerks 
thereof,  the  sheriff  and  other  county  officers,  and  of  the  jail  estate, 
used  for  a  jail  and  house  of  correction.  These  estates  are  situated 
upon  the  line  of  streets  in  which  the  city  council  of  Worcester  has 
caused  to  he  constructed  sewers,  by  virtue  of  the  statute;  and  if 
they  come  within  the  class  which  can  properly  be  subjected  to  as- 
sessments of  this  character,  the  assessment  thereon  is  valid.  The 
immunity  of  these  estates  from  taxation  depends,  however,  in  our 
opinion,  upon  other  grounds  than  that  of  a  statute  exemption,  and 
extends  to  taxation  not  only  for  general  public  purposes,  but  for 
local  improvements  of  a  public  nature.  Without  regard  to  the  stat- 
ute exemption,  property  appropriated  to  public  uses,  as  by  the  rail- 
roads, has  been  repeatedly  held  not  to  be  subject  to  taxation  in  this 
Commonwealth.     Worcester  v.  Western  Railroad,  4  Met.  564,  567. 


20-1  WOKCESTEE  COUXTY  r.  WOKCESTEK.      [cHAP.  II. 

Boston  &  Maine  Railroad  v.  Cambridge,  8  Cush.  237.  WaA'land  v. 
County  Commissioners,  4  Gray,  500,  Charlestown  r.  County  Com- 
missioners, 1  Allen,  199. 

Although  taxation  in  the  cases  referred  to  was  for  general  public 
purposes,  and  we  find  no  case  where  the  exemption  has  been  extended 
to  assessments  like  the  present,  yet  the  property  treated  in  them 
as  appropriated  to  public  use  Avas  not  so  essentially  public  in  its 
character,  nor  so  strictly  apj^ropriated  to  public  use,  as  the  real  estate 
of  these  petitioners.  The  works  constructed  by  a  railroad  corpora- 
tion, for  instance,  and  held  under  its  charter,  are  to  a  certain  extent 
public  works,  intended  for  public  use,  and  under  the  control  of  the 
public,  but  their  management,  subject  to  such  control,  is  in  the 
hands  of  a  private  corporation,  the  property  is  that  of  such  corpora- 
tion, and  the  private  rights  therein  are  of  great  importance.  The 
property  held  by  the  petitioners  is  strictly  public,  paid  for  from  the 
public  funds,  managed  by  the  public  authorities,  devoted  to  public 
purposes,  and  no  private  person  has  any  rights  or  authority  therein. 

The  property  of  the  Commonwealth  is  exempt  from  taxation  be- 
cause, as  the  sovereign  power,  it  receives  the  taxation  through  its  of- 
ficers or  through  the  municipalities  it  creates,  that  it  may  from  the 
means  thus  furnished,  discharge  the  duties  and  pay  the  expenses 
of  government.  Its  property  constitutes  one  of  the  instrumentalities 
by  wliich  it  performs  its  functions.  As  every  tax  would  to  a 
certain  extent  diminish  its  capacity  and  ability,  we  should  be  un- 
willing to  hold  that  such  property  was  subject  to  taxation  in  any 
form,  unless  it  were  made  so  by  express  enactment  or  by  clear  im- 
plication. This  property  of  the  petitioners  is  not,  indeed,  in  legal 
form,  the  property  of  the  Commonwealth,  but  the  authority  by  which 
the  county  holds  it  is  derived  from  the  statutes  by  which  the 
duty  is  imposed  upon  the  various  counties  of  providing  suitable 
court-houses,  jails  and  houses  of  correction.  Gen.  St.  c.  17,  §  5;  c. 
178,  §  6.  When  thus  provided,  such  estates,  although  held  by  the 
counties,  are  so  held  for  the  uses  and  purposes  of  the  Commonwealth, 
are  essential  to  the  administration  of  the  executive  and  judicial 
duties  of  its  government,  and  are  not  to  be  deemed  subject  to  taxa- 
tion in  any  form,  unless  the  intent  of  the  legislature  to  render  them 
so  clearly  appears. 

The  mode  provided  for  the  enforcement  of  the  assessment  under 
the  St.  of  1867,  c.  106,  certainly  leads  to  the  conclusion  that  it  was 
not  contemplated  that  it  could  be  applied  to  property  like  this  of 
the  petitioners.  "Where  wholly  new  powers  are  given,  they  are  to  be 
enforced  as  the  statute  giving  them  provides,  and  the  remedy  given 
thereby  is  exclusive  of  every  other.  Eoxbury  v.  Nickerson,  114  Mass. 
West  Eoxbury  v.  Minot,  114  Mass. 

The  only  remedy  given  for  the  collection  of  this  assessment  is 
by  means  of  the  lien  created  upon  the  estates  assessed  which  must 
be  enforced  by  a  sale  thereof.  We  do  not  tliink  that  it  was  the  intent 
of  the  le.gislature  to  subject  estates  like  these  of  the  petitioners  to 
such  a  remedy,  when  its  enforcement  might  operate  to  deprive  them 
of  the  very  instrumentalities  by  which  they  were  able  to  perform 


SECT.    IV.]  IIUXTSVILLE    V.    MADISON    COUNTY.  205 

the  duties  imposed  upon  them,  and  might  be  attended  with  serious 
inconvenience  or  positive  injury  to  the  administration  of  justice  in 
the  Commonwealth. 

For  these  reasons,  we  are  of  opinion  that  the  proceedings  of  the 
respondents  in  making  this  assessment  upon  these  estates  of  the  peti- 
tioners was  erroneous,  and  that  the  writ  of  certiorari  must  issue, 
but,  under  the  Gen,  Sts.  c.  145,  §  9,  it  will  issue  only  to  quash  so 
much  of  the  assessment  made  by  the  respondents  as  relates  thereto. 
Haverhill  Bridge  v.  County  Commissioners,  103  Mass.  120. 

Writ  of  certiorari  to  issue. 


HUNTSVILLE  v.  MADISON  COUXTY. 
Supreme  Couet  of  Alabama.     1910. 

[Reported  166  Ala.  389.] 

Andeeson,  J.  That  there  is  a  well-defined  distinction  between 
general  taxation  and  a  local  assessment  for  public  improvements, 
such  as  pavements,  sewerage,  etc.,  there  can  be  no  doubt.  It  is  also 
settled  that  constitutional  or  statutorj^  exemption  of  public  prop- 
erty from  general  taxation  does  not  necessarily  exempt  it  from  special 
local  assessment  for  public  improvements;  but,  while  there  is  a  con- 
flict, the  weight,  and,  we  think,  the  sounder  authorities,  hold  that 
general  language  in  a  statute  giving  cities  power  to  levy  assessments 
for  street  improvements  is  not  sufficient  to  embrace  the  property 
of  the  State  or  county  which  is  devoted  to  strictly  public  uses,  nor 
autliorize  the  enforcement  of  such  special  assessment  against  it  under 
a  general  judgment  against  the  county.  In  other  words,  property 
owned  and  held  by  the  State  and  counties  for  public  purposes  is 
generally  exempt  from  taxation  of  any  description,  and  is  not 
to  be  deemed  subject  to  taxation  in  any  form,  unless  the  intent 
of  the  Legislature  to  render  it  so  clearly  appears.  Worcester 
County  V.  Mayor  of  Worcester,  116  Mass.  193;  Page  &  Jones 
on  Taxation,.  §  580;  Grav  on  Limitation  of  Taxing  Powers 
§§  1906,  1174,  1175;  Witter  v.  Mission  School  District,  121  Cal. 
350,  53  Pac.  905,  Q6  Am.  St.  Pep.  33 :  Edwards  Co.  v.  Jasper  Co., 
117  Iowa,  365,  90  N.  W.  1006,  94  Am.  St.  Pep.  301,  and  note; 
City  of  Clinton  v.  Henry  Co.,  115  Mo.  557,  22  S.  W.  494,  37  Am. 
St.  Rep.  415;  Franklin  Co.  v.  Ottowa,  49  Kan.  747,  31  Pac.  788, 
33  Am.  St.  Pep.  396.  For  an  able  and  complete  discussion  of  the 
subject,  see  note  commencing  on  page  400.  AAHiile  there  are  many  au- 
thorities holding  that  this  special  tax  is  permi!=?iblc  unless  prevented 
by  the  statute,  tliey  are  almost  uniform  in  lidding  that  it  cannot  be 
enforced  by  fixing  a  lien  on  the  public  property,  and  those  that 
permit  the  levy  merely  authorize  the  collection  by  a  personal  judg- 
ment rather  than  by  an  action  in  rem.  It  must  also  be  borne  in  mind 
that  most  of  the  statutes  considorerl  in  this  line  of  decisions  did  not 
confine  the  right  to  collect  the  tax  solely  by  subjecting  the  property, 
l)ut  authorized  a  personal  judgment.    Therefore,  in  view  of  the  fact 


20G  HUNTSVILLE    V.    MADISON    COUXTY.  [cUAP.    II. 

that  they  all  hold  that  the  tax  could  not  he  enforced  by  an  action 
in  rem,  we  are  of  opinion  that  they  would  have  held  that  the  riglit 
to  levy  against  public  property  did  not  exist  had  tlie  statutes  pre- 
scribed an  action  in  rem  as  the  exclusive  remedy  to  enforce  tlie  collec- 
tion of  said  tax.  Article  26,  p.  638,  Code  1907,  provides  for  the  levy 
and  assessment  by  muniiripal  corporations  of  this  special  tax  for 
public  improvements  and  prescribes  the  remedy  for  the  enforcement 
of  the  collection  of  same,  and  which  is,  of  course,  subject  to  the  lim- 
itations fixed  by  section  223  of  the  Constitution  of  1901.  The  au- 
thority to  levy  tliis  tax  is  general,  and  the  statute  makes  no  express 
provision  for  the  levy  of  same  against  State  or  county  property  held 
for  public  purposes.  Nor  can  the  power  to  do  so  be  necessarily  im- 
plied in  view  of  the  fact  that  the  statute  (section  1386)  fixes  a  pro- 
ceeding in  rem  as  the  sole  method  of  enforcing  the  collection  of  said 
special  tax.  It  is  true  it  authorizes  the  recovery  of  the  amount  of 
the  assessment  with  interest  and  cost,  but  it  can  only  be  enforced 
against  the  property,  and  does  not  authorize  a  personal  judgment 
against  the  owner.  True,  also,  section  1398  authorizes  a  judg- 
ment, and  section  1400  authorizes  execution,  but  they  apply 
only  in  case  of  an  appeal  to  the  Supreme  Court  and  in  cases 
where  the  appellant  gave  a  supersedeas  bond.  "  The  general 
rule  seems  to  be  that,  where  the  Legislature  has  not  authorized  any 
method  for  collecting  a  tax,  an  action  at  law  will  lie  to  collect  it. 
Where  the  Legislature,  however,  has  authorized  a  method  of  collec- 
tion, the  method  is  exclusive,  and  generally  in  such  case  an  action 
will  not  lie  unless  the  statute  expressly  authorizes  it."  Gray  on 
Limitations  of  Taxing  Powers,  §§  1174,  1175;  Worcester  v.  Worces- 
ter, 116  Mass.  193. 

There  is  another  question  which  sl^ould  be  borne  in  mind  in 
arriving  at  the  legislative  intent,  and  which  seems  to  have  been 
ignored  in  those  cases  holding  that  county  property  was  liable  to 
said  special  tax.  The  Constitution  expressly  limits  this  tax  so  as 
not  to  exceed  the  increased  value  of  the  property  resulting  from  the 
benefit  to  be  derived  from  such  improvements.  It  is  a  matter  of 
common  knowledge  that  courthouse  lots  and  the  buildings  thereon 
were  procured  and  erected  for  public  use,  not  to  sell  or  rent,  and  it 
would  be  difficult  to  ascertain  how  the  county  could  be  materially 
or  financially  benefited  because  of  the  pavement  or  beautifying  the 
streets  of  Huntsville.  There  can  be  no  material  enhancement  in 
the  value  of  the  courthouse  square  that  would  prove  of  any  substan- 
tial benefit  to  the  taxpayers  of  Madison  county  generally.  They 
own  the  square  for  certain  purposes,  not  to  rent  or  sell  at  a  profit 
and  as  a  rule  the  investment  is  permanent,  and  for  the  use  to  which 
the  property  is  adapted  it  is  just  as  valuable  to  the  public  whether 
adjacent  property  is  worth  $100  or  $1,000  per  front  foot.  The  fact 
that  county  property  is  included  in  the  exemptions  from  general  taxa- 
tion by  the  terms  of  section  2061  of  the  Code  of  1907  is  no  indi- 
cation that  it  was  intended  to  be  subject  to  this  special  tax.  It  was 
exempt  regardless  of  this  statute,  and  was  doubtless  included  in  the 
schedule  with  other  property  not  necessarily  exempt,  independent  of 


SECT.    IV.]  NORTH     HAVEN     V.     WAI.LIXGFOUD.  20T 

the    statute,    and    for    the    purpose    of    setting    forth    all    exempt 
property. 

The  bill,  being  without  equity,  -was  subject  to  the  demurrers  test- 
ing its  equity  (section  3121  of  the  Code  of  1007),  and  which  were 
properly  sustained,  and  the  decree  of  the  chancery  court  is  affirmed. 

Affirmed. 


NORTH  HAVEN  v.  WALLINGFORD. 

SuniEME  Court  of  Ekhors  of  Connecticut.     1920. 
[Reported  111  Atl.  904.] 

Curtis^  J.  The  plaintiff  claims  that  the  court  erred  in  not 
holding  that  all  of  the  property  of  the  defendant  iu  North  Haven 
was  taxable,  and  further  claims  that  in  any  event  the  gristmill 
on  the  propertv  was  taxable. 

[1]  Our  statutes,  CJeneral  Statutes  1918,  §  1160,  provide  that 
"buildings  with  their  appurtenances  belonging  to  any  county,  town, 
city  or  borough"  shall  be  exempt  from  taxation.  This  provision 
in  the  light  of  the  common  law  should  be  treated  as  if  it  exempted 
from  taxation  all  property  held  by  municipalities  for  public  use. 
West  Hartford  v.  Board  of  Water  Commissioners,  44  Conn.  368; 
Hamden  v.  New  Haven,  91  Conn.  589,  lUl  Atl.  11. 

[2]  The  plaintiff  claims  that  as  the  borough  was  generating 
electricity  not  only  to  light  its  own  streets  and  public  places  but 
also  to  sell  it  for  light,  heat,  and  power,  to  the  inhabitants  of  Wall- 
ingford,  it  was  not  using  its  North  Haven  plant  for  a  public  use, 
but  for  a  use  that  was  essentially  private. 

It  is  the  recognized  law  tliat  the  furnishing  of  electricity  to  the 
public  for  light,  heat,  and  power  for  pay  is  a  public  use  for  which 
the  power  of  eminent  domain  may  be  exercised.  Lewis,  Eminent 
Domain  (3d  Ed.)  vol.  1,  §  268;  Judson  on  Taxation  (2d  Ed.) 
§§  387,  388. 

It  is  now  the  common  law  in  Connecticut,  and  in  substantially 
all  the  states,  that  a  municipality,  which,  acting  imder  legislative 
authority,  maintains  and  operates  a  public  service  plant  and  fur- 
nishes water  or  gas  or  electricity  for  light,  heat,  and  power  to  itself, 
and  to  its  inhabitants  for  pay,  holds  such  plant  for  a  public  use. 

[3]  The  great  weight  of  authority  holds  that  such  a  plant  is 
exempt  from  taxation  wherever  situated  within  the  state  of  the 
municipality.  West  Hartford  v.  Hartford,  44  Conn.  369:  Traverse 
Citv  r.  Blair  County,  190  Mich.  313,  157  N.  W.  81,  Ann.  Cas. 
1918E,  81;  Hamden  v.  'Sov/  Haven,  91  Conn.  589,  101  Atl.  11; 
Td.,  91  Conn.  589,  101  Atl.  11,  3  A.  L.  "R.  1435  and  note;  New 
London  v.  Perkins,  87  Conn.  229,  87  Atl.  724;  Opinion  of  Justices, 
150  Mass.  592,  24  N.  E.  1084,  8  L.  "R.  A.  487;  Judson  on  Taxation 
(2d  Ed.)  §  388 ;  Pond  on  Public  TTtilities,  §  322. 

The  principles  of  law  and  public  policy  underlying  this  law  have 


208  NORTH    HAVEX     V.     WALLIXGFOED.  [ciIAr,     II. 

been  so  fully  set  forth  iii  the  quoted  cases  and  elsewhere  that  it  is 
no  longer  desirable  to  repeat  them. 

The  electric  light  plant  of  the  defendant  located  in  North  Haven 
was  therefore  exempt  from  taxation  by  that  town. 

The  plaintiff  suggests  that,  under  section  10  of  chapter  231  of  the 
Public  Acts  of  1893  (Eevision  1918,  §  506),  relating  to  the  price 
that  a  municipality  may  charge  for  gas  or  electricity  produced  by 
a  numicipal  plant,  it  may  be  that  the  borough  of  Wallingford  is 
not  now  and  never  has  been  and  never  will  be  subjected  to  any 
expense  in  conducting  the  electric  plant  in  question;  but,  on  the 
contrary,  the  borough  may  always  have  been  making  a  profit  there- 
from, and  that  consequently,  if  the  judgment  of  the  superior  court 
is  sustained,  the  town  of  North  Haven  by  its  loss  of  the  power  to 
tax  a  portion  of  its  territory  is  the  only  municipality  put  to  any 
expense  in  maintaining  the  electric  plant  in  question  for  the  benefit 
of  the  borough  of  Wallingford. 

The  town  claims  that  therefore  it  is  not  just  that  its  right  to  tax 
the  portion  of  the  plant  located  in  North  Haven  should  be  denied. 

There  is,  however,  nothing  in  the  finding  to  show  that  this  sug- 
gested possibility  is  a  fact,  and  hence  no  question  in  relation  to  the 
matter  is  before  us  for  decision. 

Influenced,  no  doubt,  by  the  possibility  of  such  an  unjust  and 
oppressive  condition  arising  as  is  here  suggested  by  the  plaintiff, 
the  state  of  New  York  has  provided  by  statute  that  the  "property 
of  a  municipal  corporation  of  the  state  held  for  a  public  use,"  shall 
be  exempt  from  taxation  "  except  the  portion  of  municipal  property 
not  within  the  corporation."  Birdseye's  Consol.  Laws  of  N.  Y. 
vol.  5,  p.  5806,  §  4,  par.  3. 

In  the  years  1913  to  1916,  inclusive,  the  gristmill  on  said  acre 
of  land  of  the  defendant  in  North  Haven  was  assessed  for  taxation 
as  a  distinct  item  by  the  to^vn. 

[4]  The  town  claims  that  the  use  of  the  gristmill  by  the  defend- 
ant for  pay  makes  it  a  lawful  subject  of  taxation. 

When  the  defendant  purchased  the  water  power  and  the  essential 
land  in  North  Haven  connected  therewith  under  legislative  authority, 
if  it  had  found  thereon  a  gristmill  which  it  deemed  it  could  run 
profitably  as  a  commercial  proposition,  and  then  did  so  run  it  solely 
for  such  purpose,  a  situation  would  be  presented  which  would  render 
the  plaintiff's  claim  seemingly  valid. 

The  situation  presented  by  the  finding  is  far  different.  The  water 
power  in  question  was  granted  to  the  defendant's  predecessor  in 
title  upon  condition  that  the  gristmill  should  be  kept  fit  for  service. 

The  plaintiff  claimed  that  the  defendant  could  not  hold  the  land 
and  water  power  without  operating  the  gristmill.  The  defendant 
under  such  claim,  and  to  protect  itself  from  the  possible  impainuent 
of  its  right  to  the  stream  by  diversion  or  adverse  flowage  rights, 
has  continued  to  keep  the  gristmill  in  a  condition  for  service,  and 
has  received  and  ground  the  rare  and  occasional  grists  brought  to 
the  mill.  The  mill  is  not  run  for  money  making,  and  the  net  income 
from  it  is  inconsequential. 


SECT.   IV.]        SAXITARY  DISTRICT   OF  CHICAGO  V.   GIBBONS.  209 

The  receipts  from  the  mill  are  merged  ^vith  all  the  receipt'?  from 
the  plant,  and  its  expenses  are  paid  from  appropriations  by  the 
defendant  for  the  operation  of  its  electric  plant. 

Under  these  conditions,  the  gristmill  buildino;  is  an  inseparable 
part  of  the  electric  plant  of  the  defendant  held  for  public  use.  Its 
maintenance  and  operation*  as  a  gristmill  for  tlie  purposes  stated 
above  are  pureh^  a  subordinate  incident  in  the  maintenance  by  the 
defendant  unimpaired  of  the  water  power  of  its  entire  plant.  It 
is  not  an  indo])endcnt  commercial  enterprise. 

As  the  gristmill  is  not  run  as  a  commercial  enterprise,  but  as  an 
incident  to  the  maintenance  of  the  water  power  of  the  electric  plant, 
the  mere  receipt  of  a  trifling  revenue,  which  went  into  the  borough 
treasury,  does  not  render  the  mill  subject  to  taxation.  Hamden 
V.  'New  Haven,  91  Conn.  589,  101  Atl.  11;  West  Hartford  v.  Conn. 
Fair  Ass'n,  88  Conn.  627,  92  Atl.  432;  Perth  Ambov  v.  Barker,  74 
N.  J.  Law,  127,  65  Atl.  201. 

"We  hold,  therefore,  that  tlie  gristmill  building  is  not  a  subject 
of  taxation,  separable  from  the  electric  plant,  under  the  conditions 
now  prevailing. 

There  is  no  error. 

The  other  judges  concurred. 


SANITAEY  DISTRICT  OF  CHICAGO  v.  GIBBONS. 
Supreme  Court  of  Illinois.     1920. 

[Reported  293  III  519.] 

Carter,  J.  Appellant,  the  Sanitary  District  of  Chicago,  sought 
by  this  bill,  filed  in  the  Superior  Court  of  Cook  County,  to  restrain 
the  collection  of  real  estate  taxes  for  the  year  1918  on  certain  parcels 
of  land  included  in  the  right  of  way  of  the  Calumet  Sag  channel, 
the  right  of  way  of  the  main  channel,  the  bed  of  the  main  channel 
and  certain  Desplaines  river  lots,  all  of  said  real  estate  being  in 
Cook  County  but  outside  the  territorial  limits  of  the  sanitarv  dis- 
trict. Other  taxes  were  involved  in  the  bill  not  necessary  to  be  here 
considered.  After  a  hearing  the  trial  court  entered  a  decree  dismiss- 
ing the  bill  as  to  said  taxes,  and  from  that  decree  an  appeal  has 
been  prayed  to  this  court  by  the  district. 

In  an  elaborate  brief  counsel  for  the  sanitary  district  have  argued 
that  the  real  estate  in  question  should  be  exempted  because  it  is 
*'  public  ground  used  exclusively  for  public  purposes  " ;  that  the  san- 
itary district  is  a  municipal  corporation  (People  v.  Xelson,  133  111. 
565;  Wilson  v.  Board  of  Trustees,  133  111.  443),  and  was  organized 
primarily  for  the  puqiose  of  keeping  tlie  sewerage  and  waste  of  Chi- 
cago out  of  Lake  Michigan,  and  was  therefore  organized  for  a  public 
purpose  of  the  greatest  importance  (Citv  of  Chicago  v.  Green,  238 
111.  258;  Judge  v.  Bergman,  258  111.  246).  This  court  has  held  in 
Sanitar)^  District  i'.  Ma'rtin,  173  111.  243,  that  the  right  of  way  of  the 
main  drainage  channel  of  the  sanitarv  district  outside  of  the  terri- 


210  SANITARY  DISTIilCT  OF  CHICAGO  V.   GIBBONS.        [cHAP.   II. 

torial  limits  of  said  district  is  not  "  public  grounds"  as  that  phrase 
is  used  in  section  2  of  the  Kevenue  Act  of  this  State.  This  doc- 
trine was  approved  by  this  court  in  Sanitary  District  v.  Hanberg, 
226  111.  480,  but  it  was  further  held  in  this  last  case  that  the 
lands  within  the  limits  of  the  sanitary  district,  including  the  chan- 
nel and  right  of  way  to  be  devoted  exclusively  to  the  purpose  of 
draining  and  carrying  off  the  sewerage,  was  exempt  from  taxation. 
The  doctrine  in  these  cases  was  approved  again  by  this  court  in 
Sanitary  District  v.  Gifford,  257  111.  424,  and  in  Sanitary  District 
V.  Young,  285  111.  351.  This  is  conceded  by  counsel  for  appellant 
in  this  case  but  they  argue  that  the  conclusion  heretofore  reached 
by  this  court  on  the  question  of  taxing  the  right  of  way  of  the 
main  channel  of  the  sanitary  district  outside  of  the  territorial 
limits  of  the  district  is  so  contrary  to  the  general  trend  of  author- 
ities in  other  jurisdictions  that  they  are  again  presenting  this  ques- 
tion to  this  court  with  the  suggestion  that  tliis  court  may  in  its 
wisdom  be  disposed  "to  modify  its  former  rulings  as  to  the  land  in 
the  main  channel  outside  of  the  confines  of  the  sanitary  district." 
In  view  of  these  former  holdings  of  this  court,  wldch  practically 
cover  all  the  principal  grounds  urged  by  counsel  for  appellant,  it 
would  be  sufficient,  in  our  judgment,  simply  to  reaffirm  the  conclu- 
sions reached  in  those  cases  without  entering  into  any  discussion  of 
the  principles  involved,  but  in  view  of  the  earnest  and  comprehensive 
argument  of  counsel  for  appellant  we  have  decided  to  refer  again 
briefly  to  the  principles  involved. 

Counsel  for  appellant  argue  that  the  weight  of  authority  in  this 
country  is  in  favor  of  the  proposition  that  all  land  owned  by  a  muni- 
cipal corporation  and  used  in  furtherance  of  its  organic  purposes  is 
exempt  from  taxation  whether  such  land  is  within  or  without  its 
territorial  limits,  and  they  have  cited  numerous  authorities  in  other 
jurisdictions  which  tend  to  support  their  argument  in  this  regard. 
This  court  in  the  first  case  discussing  this  question  (Sanitary  District 
V.  Martin,  supra)  conceded  that  in  other  jurisdictions  the  rulings 
might  be  different  from  the  conclusion  reached  in  that  case  as  to 
the  property  in  question  being  subject  to  taxation,  but  held  that  it 
has  been  the  rule  in  this  State  from  its  earliest  history  that  the  as- 
sessment of  taxes  upon  public  property  of  State,  county  or  municipal 
corporations  was  a  mere  question  of  policy  and  that  the  power  existed 
to  make  it  bear  its  share.  It  is  clear  from  the  reasoning  of  Judge 
Cooley  in  his  authoritative  work  on  Taxation  (volume  1,  3d  ed.  p. 
263)  that  the  rule  in  most  jurisdictions  is  that  it  is  purely  a  question 
of  public  policy  whether  the  public  property  of  municipalities  shall  be 
exempt.  It  is  also  stated  in  Sanitary  District  v.  Martin,  supra,  that, 
wliatever  may  be  the  law  in  other  States,  the  language  of  the  con- 
stitution of  this  State  plainly  implies  that  the  property  of  muni- 
cipnl  corporations  is  subject  to  taxation  unless  there  is  a  law  ex- 
empting it;  that  statutes  exempting  property  from  taxation  are 
to  be  strictly  construed,  and  that  property  claimed  to  be  exempt 
must  clearly  appear  to  be  witliin  the  terms  of  the  statute,  other- 
wise the  courts  will  not  hold  it  exempt  from  taxation.     The  court 


SECT.  IV.]        CONGEEGATIONAL  S.  S.,  &C.  V.  BOAIiD  OF  BEVIEW.    211 

in  that  case  discussed  at  considerable  length  the  very  principles  of 
our  Constitution  and  revenue  laws  now  relied  on  in  the  extended 
brief  of  counsel  for  appellant  as  showing  that  this  property  should 
be  exenijjt,  and  held  said  property  not  to  be  exempt,  under  our 
constitution  and  statutes.  These  conclusions  in  that  case  have  been 
adhered  to  in  the  later  cases,  particularly  Sanitary  District  v.  Han- 
berg,  supra,  and  Sanitary  District  v.  Young,  supra.  In  the  case  of 
Sanitary  District  v.  llanberg,  supra,  the  court  laid  down  the  rule 
(226  111.  483)  that  "  the  public  outside  of  tlie  district  have  no  right 
to  use  the  drain  or  channel  for  sewerage,  and  that  part  of  the  channel 
is  a  mere  conduit  for  carrying  of!  the  sewerage  from  the  drainage 
district.  The  only  beneficial  use  of  the  public  in  that  part  of  the 
channel  is  a  mere  easement  of  passage  over  the  water  for  the  purpose 
of  navigation.  It  was  therefore  held  that  the  authorities  of  Will 
county  could  lawfully  levy  taxes  upon  said  land."  Tlie  same  rule 
was  applied  in  Sanitary  District  v.  Young,  supra.  .   .  , 

Decree  Affirmed. 


CONGREGATIONAL   SUNDAY    SCHOOL   AND 

PUBLISHING  SOCIETY  v.  BOARD  OF  REVIEW. 

Supreme  Court  of  Illinois.     1919. 

[Reported  290  III.   108.] 

Thompson,  J.  This  is  an  appeal  by  the  Congregational  Sunday 
School  and  Publishing  Society  from  a  decision  of  the  board  of  re- 
view of  Cook  county  denying  its  personal  property  eivemption 
from  taxation.  This  property  consisted  of  religious  and  moral 
books  and  Sunday  school  supplies  kept  in  its  store  at  19  West 
Jackson  boulevard,  Chicago.  Its  property  was  assessed  at  $20,000. 
The  Auditor  of  Public  Accounts  has  certified  the  record  to  tliis 
court  for  review. 

Appellant  was  formed  by  the  consolidation  of  two  private  cor- 
porations and  is  organized  under  certain  special  acts  of  the  State 
of  Massachusetts.  Its  main  office  is  located  in  Boston,  and  the 
Chicago  office  is  a  branch  establislied  for  handling  its  business 
in  that  territory  west  of  the  State  of  Ohio.  The  corporate  purposes 
of  appellant,  as  authorized  by  the  statutes  of  the  State  of  Massa- 
chusetts, are  to  establish  and  aid  Sunday  schools,  supply  Sunday 
school  libraries  and  othenvise  promote  Sunday  school  education;  to 
produce,  publish,  sell  and  circulate  moral  and  religious  tracts  and 
books;  and  to  publish,  purchase,  sell,  circulate  and  distribute,  in 
such  manner  as  it  deems  advisable,  any  and  all  publications,  books, 
tracts,  papers  or  periodicals  calculated  to  promote  good  morals,  pure 
Christianity,  the  spread  and  extension  of  the  gospel  of  Jesus  Christ, 
and  to  take,  hold  and  disburse  any  and  all  charitable  funds  con- 
tributed to  it  for  the  purposes  aforesaid.  The  charter  of  the  Con- 
gregation   Sabbath    Scliool    and    Publishing    Society,    one    of    the 


212   CO^'^GEEGATIO^'AL  S.  S.^  &C.   V.   BOAKD  OF  KEYIEW.  [CHAP.  II. 

corporations  merged  in  appellant,  provided  that  nothing  in  the  act 
creating  it  was  to  be  construed  to  authorize  the  corporation  to  traffic 
in  books  for  the  purpose  of  profit. 

Section  46  of  our  Corporation  act  (Hurd's  Stat.  1917,  p.  707,) 
authorizes  religious  corporations  to  publish,  print,  circulate,  sell 
or  give  away  such  religious.  Sabbath  school  and  missionary  tracts, 
periodicals  or  books  as  they  may  deem  necessary  to  the  promotion 
of  religion  and  morality.  We  have  held  that  a  foreign  corporation 
legally  doing  business  in  tliis  State  has  all  the  rights  and  privileges 
that  a  similar  domestic  corporation  has.  Eaton  v.  Home  Mission- 
ary Society,  264  111.  88. 

It  is  conceded  that  the  business  of  appellant  is  four-fold:  It 
maintains  a  Sunday  school  missionary  department,  which  organizes 
Sunday  schools  and  maintains  missionaries  who  visit  and  assist  in 
the  work  of  these  schools;  it  publishes  and  circulates  a  religious 
paper  known  as  The  Congregationalist  and  Advance  and  four  other 
smaller  religious  periodicals;  it  publishes  and  sells  religious  and 
moral  books ;  and  it  composes  and  publishes  Sunday  school  peri- 
odicals, quarterlies  and  lesson-helps,  and  sells  these  supplies  to  Sun- 
day schools  of  all  denominations.  Appellant  employs  authors  of 
note  to  write  its  books,  and,  so  far  as  the  record  shows,  it  sells  at 
its  Chicago  office  only  such  books  as  it  writes  and  publishes.  The 
aim  of  the  corporation  is  to  publish  and  distribute  these  books 
for  the  purpose  of  disseminating  the  views  of  its  writers  on  religion 
and  moralit}'.  A  sufficient  charge  is  made  to  cover  the  expenses  of 
this  work.  All  the  printing  and  publishing  is  done  in  Boston. 
The  Chicago  branch  is  used  as  western  headquarters  for  the  work 
of  tlie  societ}-,  and  it  maintains  a  store,  where  its  religious  and 
moral  books  and  Sunday  school  supplies  are  sold  to  whomsoever 
desires  to  buy.  The  funds  of  appellant  are  raised  by  donations  from 
Congregational  churches,  Sunday  schools.  Christian  Endeavor 
societies,  women's  home  missionary  organizations  and  individuals, 
and  by  incomes  from  certain  legacies,  trust  funds  and  investments. 
All  of  these  funds  are  handled  in  Boston,  and  none  of  the  property 
of  appellant,  except  the  books  and  Sunday  school  supplies,  is  kept 
in  Chicago.  All  of  the  income  of  appellant  is  devoted  to  the  cor- 
porate purposes  heretofore  outlined.  No  stock  is  issued,  no  dividends 
are  declared  and  no  profit  accrues  to  any  individual.  Appellant 
contends  that  these  corporate  purposes  and  acts  are  clearly  religious, 
beneficent  and  charitable,  and  that  its  property  is  therefore  exempt 
from  taxation. 

The  onlv  tabulated  statement  of  receipts  and  disbursements  and 
of  assets  and  liabilities  that  appears  in  the  record  is  one  for  theyear 
1908-1909.  That  vear  its  business  showed  a  profit  to  the  Chicago 
office  of  $8440.28. '  It  appears  that  some  years  the  business  is  op- 
erated at  a  profit  and  some  years  it  is  operated  at  a  loss.  Appellant's 
business  at  Chicago  for  the  vear  1917  amounted  to  approximately 
$200,000,  of  which  $140,000  was  from  the  sale  of  Sunday  school 
supplies  and  $60,000  from  the  sale  of  religious  and  moral  books. 
It  is,  of  course,  impossible  to  determine  just  what  the  expenses  will 


SECT.  IV.]        CONGE.EGATIO:srAL  S.  S.^  iC.  r.  BOARD  OF  EEVIEW.    213 

be  each  year,  but  it  appears  that  the  prices  charged  are  such  that 
in  carrying  the  business  over  a  period  of  years  there  will  be  practi- 
cally no  profits.  When  a  Sunday  school  is  in  such  financial  condition 
that  it  is  unable  to  purchase  its  supplies  the  society  will  furnish 
the  supplies  gratis.  If  the  missionaries  find  a  Sunday  school  in 
need  of  tliese  supplies  which  is  able  to  pay  only  a  portion  of  the  list 
price,  then  it  is  furnished  with  these  supplies  at  a  cost  of  seventy- 
five,  fifty  or  twenty-five  per  cent  of  the  price,  in  accordance  with 
its  ability  to  pay.  Such  profits  as  do  come  from  the  business  of 
selling  books  and  periodicals  are  devoted  to  the  maintenance  of  the 
missionary  department. 

In  determining  whether  appellant  is  entitled  to  have  its  claim 
for  exemption  granted  it  will  be  necessary  to  consider  the  revenue 
laws  of  this  State.  All  property  in  this  State  is  subject  to  taxation 
unless  it  is  exempted.  Section  3  of  article  9  of  the  constitution 
does  not  exempt  from  taxation  such  property  as  may  be  used  ex- 
clusively for  school,  religious  or  charitable  purposes,  but  merely 
provides  that  the  General  Assembly  may  by  general  law  exempt 
from  taxation  the  property  of  such  institutions.  Section  2  of  the 
Eevenue  act  provides  that  "all  property  used  exclusively  for  re- 
ligious purposes,  or  used  exclusively  for  school  and  religious  pur- 
poses, .  .  .  and  not  leased  or  otherwise  used  with  a  view  to  profit,'* 
and  "all  property  of  institutions  of  public  charity,  all  property  of 
beneficent  and  charitable  -  organizations,  whether  incorporated  in 
this  or  in  any  other  State  of  the  United  States,  .  .  .  when  such 
property  is  actually  and  exclusively  used  for  such  charitable  or  bene- 
ficent purposes  and  not  leased  or  otherwise  used  with  a  view  to 
profit,"  shall  be  exempt  from  taxation.  This  society  claims  ex- 
emption under  both  of  these  clauses,  and,  so  far  as  this  particular 
ease  is  concerned,  they  are  so  closely  associated  that  we  will  discuss 
them  together. 

Before  proceeding  further  it  is  well  to  determine  what  is  meant 
by  the  term  "beneficent  and  charitable  organizations."  The  de- 
finition of  a  charity  which  we  adopted  in  Crerar  v.  Williams,  145  111. 
625,  first  laid  down  by  Mr.  Justice  Gray  in  Jackson  v.  Phillips, 
14  Allen,  539,  is :  "A  charity,  in  a  legal  sense,  may  be  more  fully 
defined  as  a  gift,  to  be  applied,  consistently  with  existing  laws,  for 
the  benefit  of  an  indefinite  number  of  persons,  either  bv  bringing 
their  minds  and  hearts  under  the  influence  of  education  or  religion, 
...  by  assisting  them  to  establish  themselves  in  life  ...  or  by 
otherwise  lessening  the  burdens  of  government."  This  definition 
was  approved  in  Hoeffer  v.  Clogan,  171  111.  462,  In  re  Estate  of 
Graves,  242  id.  23,  and  Skinner  v.  Northern  Trust  Co.  288  id.  229. 
The  editors  of  the  American  and  English  Encyclopedia  of  Law 
(5  Am.  &  Eng.  Ency.  of  Law,  —  2d  ed.  —  894,")  and  of  Corpus 
Juris  (11  Corpus  Juris,  299,)  have  accepted  this  definition  as 
comprehensive  and  satisfactor\\ 

Charity,  in  the  legal  sense,  is  not  confined  to  mere  almsgiving 
or  the  relief  of  poverty  and  distress,  but  has  a  wider  signification, 
which  embraces  the  improvement  and  promotion  of  the  happiness 


214:       CONGBEGATIOXAL,  S.  S,.,  &C.  V.  BOAED  OF  EEVIEW.     [cUAl'.  II. 

of  man.  A  charity  is  a  gift  to  the  general  public  use  which  extends 
to  the  rich  as  well  as  to  the  poor.  The  test  of  a  charity  and  tiie  test 
of  a  charitable  organization  are  in  law  the  same.  The  principal  and 
distinctive  features  of  a  charitable  organization  are,  that  it  has  no 
capital  stock  and  no  provision  for  mailing  dividends  or  profits  but 
derives  its  funds  mainly  from  public  and  private  charity  and  holds 
tliem  in  trust  for  the  objects  and  purposes  expressed  in  its  charter. 
In  other  words,  the  test  whether  an  enterprise  is  charitable  is 
whether  it  exists  to  carry  out  a  purpose  recognized  in  law  as  chari- 
table, or  whether  it  is  maintained  for  gain,  proht  or  private  advan- 
tage. An  institution  does  not  lose  its  charitable  character,  and 
consequent  exemj^tion  from  taxation,  by  reason  of  the  fact  that  those 
recipients  of  its  benefits  who  are  able  to  pay  are  required  to  do  so, 
where  no  profit  is  made  by  the  institution  and  the  amounts  so  re- 
ceived are  applied  in  furthering  its  charitable  purposes  and  those 
benefits  are  refused  to  none  on  account  of  inability  to  pay  therefor. 
The  fundamental  ground  upon  which  all  exemptions  in  favor  of 
charitable  institutions  are  based  is  the  benefit  conferred  upon  the 
public  by  them,  and  a  consequent  relief,  to  some  extent,  of  the  bur- 
den upon  the  State  to  care  for  and  advance  the  interests  of  its 
citizens. 

The  main  case  relied  upon  by  appellee  as  tending  to  hold  that 
appellant  is  not  a  charity,  and  therefore  not  entitled  to  exemption 
from  taxation,  is  American  Sunday  School  Union  v.  City  of  Phila- 
delphia, 161  Pa.  St.  307.  The  purpose  of  the  union  was  the  erection 
and  maintenance  of  Sunday  schools  and  the  publication  and  cir- 
culation of  moral  and  religious  periodicals  and  books.  It  had  no 
capital  stock  and  paid  no  dividends.  It  owned  and  occupied  a  build- 
ing where  books  published  not  only  by  itself  but  also  by  other  con- 
cerns were  sold.  Standard  works,  such  as  Webster's  Dictionary, 
were  included  in  the  books  sold  by  the  union.  The  court  held  that 
while  the  union  was  a  benevolent  and  charitable  institution,  still  the 
building  occupied  by  it  was  liable  to  taxation.  The  court  said: 
"Conceding  the  fact  that  the  society  is  an  *^ institution  of  purely 
public  charity,'  and,  as  such,  exempt  from  taxation,  it  seems  to  us 
such  an  institution  may,  as  an  aid  to  the  accomplishment  of  its 
primary  object,  carry  on  a  business  or  use  part  of  its  property  for 
a  business  purpose  which  renders  such  business  or  such  part  of  its 
property  taxable.  The  first  floor  of  the  society's  Chestnut  street 
building  was  used  for  purely  business  purposes,  and  its  business  was 
conducted  in  that  location  for  the  avowed  purpose  of  profit.  .  .  . 
While  they  confine  their  trade  to  'publications  of  a  high  moral 
r-haracter  and  such  standard  works  as  Webster's  Dictionary  and 
like  works,'  this  in  no  way  negatives  the  business  character  of  the 
enterprise.  .  .  .  Nor  does"  the  fact  that  the  profits  gr.tbered  on  the 
counter  of  the  book  store  are  devoted  to  the  primary  ol)ject  of  the 
charity,  which  is  purely  public,  in  any  degree  affect  the  character 
of  the  trading  or  commercial  enterprise.  Every  dollar  the  society 
expends  is  some  charitable  contributor's  gains  or  profits  from  some 
business  not  charitable.     If  such  contributor  devoted  the  whole  of 


SECT.  IV.]        CONGREGATIONAL  S.  S.,  &C.  V.  BOAKD  OF  EEVIEW.    215 

his  profits  from  the  sale  of  dry  goods,  groceries  or  books  to  promote 
this  particuhir  charity,  that  fact  would  not  make  the  source  of  such 
profit  a  purely  public  charity;  and  if,  as  the  master  has  found,  the 
society  was  compelled  to  put  a  part  of  its  operations  on  a  basis  that 
was  self-si!j)p()rting  by  starting  a  book  store  to  sell  books  only  of  a 
high  moral  ciuiracter  and  standard  publications,  that  is  trade. 
That  the  entire  profits  of  tiiis  brancli  of  the  business  are  devoted 
to  the  purposes  of  the  charity  no  more  changes  its  business  nature 
than  if,  instead  of  a  book  store,  the  society  had  established  and 
carried  on  a  slioe  store.'' 

In  Alton  Bay  Camp-Meeting  Ass'n  v.  Town  of  xVlton,  69  N.  H. 
311,  the  charter  of  the  association  provided  that  its  real  and  personal 
property,  within  certain  limits,  used  for  religious,  moral,  charitable 
and  benevolent  purposes,  should  be  exempt  from  taxation.  Among 
its  affairs  it  conducted  a  grocery  store,  witli  a  stock  valued  at  about 
$500,  which  it  claimed  to  be  exempt  from  taxation,  but  the  court 
there  held  that  tlie  purposes  of  a  religious  institution  were  not 
advanced  directly  by  operating  the  grocery  store  and  therefore  it 
was  subject  to  taxation. 

In  Sisters  of  Peace  v.  Westervelt,  64  X.  J.  L.  510,  exemption 
from  taxation  was  claimed  on  a  tract  of  land  upon  which  a  chapel 
and  a  three-story  frame  building  used  for  a  summer  boarding  house 
had  been  erected.  The  annual  income  from  the  boarding  house 
amounted  to  over  $5000,  which  money  was  afterwards  used  for 
charitable  purposes.  The  court  there  held  tliat  the  chapel  and 
grounds  upon  which  it  stood  were  exempt  but  that  the  operation  of 
the  boarding  house  did  not  directly  further  the  purposes  for  which 
the  society  w^as  organized,  and  therefore  the  building  and  tract 
were  not  exempt.  The  court  said:  "The  fact  that  the  profits  of 
a  commercial  enterprise  are  either  in  whole  or  in  part  devoted  to 
charity  certainly  does  not  operate  to  render  the  business  itself  a 
charity;  nor  is  the  property  in  which  it  is  carried  on,  by  reason  of 
such  appropriations  of  profits,  used  for  charitable  purposes." 

In  Fitterer  v.  Crawford,  157  Mo.  51,  a  Masonic  lodge  which 
owned  a  building  of  which  the  first  and  second  floors  were  rented 
and  the  third  floor  was  used  as  a  lodge  room,  asked  that  the  building 
be  exempt  from  taxation  on  the  ground  that  the  rents  so  received 
were  used  for  the  benevolent  purposes  of  the  lodge  and  that  these 
floors  were  not  rented  for  profit.  The  court  there  held  that  the  use 
of  the  rents  so  received  for  the  purposes  of  the  lodge  did  not  con- 
stitute using  the  building  exclusively  for  purely  charitable  pur- 
poses, within  the  meaning  of  the  statute.  To  the  same  effect  are 
the  holdings  in  the  following  cases  cited  by  appellee:  Stahl  v. 
Kansas  Educational  Ass'n,  54  Kan.  542;  Citv  of  New  Orleans  v. 
St.  Patrick's  Hall  Ass'n,  28  La.  Ann.  512:  Pidsrelv  Lodsre  v.  Redus. 
78  Miss.  352:  Parker  v.  Quinn,  23  TTtnh,  332:  Trustees  of  the 
Academy  of  Pichmond  Countv  r.  Bolder,  80  Oa.  159;  Young  Men's 
Christian  Ass'n  v.  Doiidas  County,  60  Neb.  642. 

We  are  also  referred  by  appellee  to  two  decisions  of  this  coiirt. 
Tn  Monticello  Seminary  v.  Board  of  Review,  249  111.  481,  we  held 


216       COXGEEGATIO^'AL  S.  S.^  &C.   V.  BOAKD  OF  EEVIEW.     [ciIAr.  II. 

that  interest  from  bonds  and  notes  owned  by  educational  institu- 
tions were  not  exempt,  even  should  such  interest  be  used  for 
the  maintenance  of  the  school.  "We  there  held  that  the  property 
itself  must  be  directly  used  for  school  purposes  before  it  is  entitled 
to  be  exempted.  In  First  j\Iethodist  Episcopal  Church  v.  City  of 
Chicago,  26  111.  482,  the  church  owned  a  building  in  Chicago,  the 
third  floor  of  which  it  used  for  church  purposes  but  the  first  and 
second  floors  were  rented  for  commercial  purposes.  The  rents 
so  received  were  used  for  paying  off  the  indebtedness  of  the  church. 
The  purpose  of  the  church  to  promote  religion  and  morality  was 
not  advanced  directly  by  leasing  a  portion  of  its  building  for  profit, 
and  so  we  held  that  the  part  of  the  building  rented  for  commercial 
purposes  was  liable  to  taxation. 

The  only  case  cited  by  appellee  directly  in  point  is  American 
Sunday  School  Union  v.  City  of  Philadelphia,  supra.  This  is  a 
Pennsylvania  case,  and  the  constitution  of  Pennsylvania  limits 
exemption  from  taxation  to  "institutions  of  purely  public  charity." 
Our  constitution  does  not  so  limit  the  power  of  our  legislature  in 
granting  exemptions.  In  addition  to  selling  its  own  publications 
the  union  also  sold  such  secular  books  as  Webster's  Dictionary. 
These  points  sufficiently  distinguish  the  Pennsylvania  case,  so  that 
it  can  not  be  said  to  be  exactly  in  point  with  the  case  under  con- 
sideration. In  all  the  other  cases  above  referred  to,  money  was 
realized  by  the  religious  or  charitable  institutions  from  purely  com- 
mercial sources.  In  none  of  the  cases  was  any  object  of  the  religious  or 
charitable  institution  promoted  by  the  act  done  for  which  the  money 
was  received.  It  must  therefore  be  determined  whether  the  primary 
purpose  of  the  retail  book  business  of  the  appellant  is  charitable,  or 
whether  the  primar}'-  purpose  is  the  making  of  a  profit  and  the 
secondary  purpose  is  the  devoting  of  these  profits  to  charitable 
purposes.  First  Congregational  Church  v.  Board  of  Review,  251 
111.  220. 

It  seems  clear  from  the  statement  of  facts  certified  to  this  court 
that  the  dominant  object  of  appellant  is  to  spread  the  gospel  of  Jesus 
Christ  by  the  spoken  and  written  word,  and  under  this  object  this 
is  directly  promoted  by  the  distribution  of  its  religious  and  moral 
books  and  Sunday  school  supplies.  It  follows,  therefore,  that  the 
object  of  selling  books  and  supplies  is  not  to  make  money  but  is  to 
promote  the  religious,  charitable  and  beneficent  purposes  of  appel- 
lant by  disseminating  the  teachings  of  its  books  and  periodicals. 
The  purpose  of  the  society  is  accomplished  by  the  effect  on  the  minds 
and  lives  of  the  children  and  adults  who  read  and  study  its  books 
and  periodicals.  The  work  of  appellant  is  to  send  its  workers  and 
missionaries  into  those  parts  of  our  land  where  religious  teaching 
among  the  young  has  been  neglected,  and  there  to  take  the  young 
into  Sunday  schools  for  moral  and  religious  instruction  and  pro- 
vide for  them  wholesome  literature.  Many  of  these  books  are  suit- 
able for  the  use  of  adults,  and  the  society  seeks  to  supply  needs  of 
individuals  and  families  by  gift  where  that  is  necessary,  but  by  a 
sale  whenever  a  sale  is  practicable.     The  price  received,  whatever 


SECT.  IV.]        COXGEEGATIONAL  S.  S.,  &C.  V.  BOARD  OF  EEVIEW.    217 

it  may  be,  makes  a  gift  to  needy  persons  possible  to  the  amount  so 
received  beyond  what  the  society  could  otherwise  give.  It  is  not 
the  use  to  be  made  of  the  profits  but  the  nature  of  the  business  done 
that  is  to  be  considered  in  deciding  the  question  of  liability  to  taxa- 
tion. We  have  already  pointed  out  the  purposes  for  which  this 
society  was  organized  and  the  four-fold  nature  of  its  business.  Sales 
of  publications  made  by  this  society,  whether  at  a  profit,  at  actual 
cost  or  half  cost,  are  in  aid  of  the  gratuitous  distribution  of  the 
same  publications  among  those  who  are  unable  to  buy  them. 

In  support  of  its  claim  for  exemption  appellant  directs  our  at- 
tention to  a  number  of  cases  of  this  and  other  States,  In  Maine 
Baptist  Missionary  Convention  v.  City  of  Portland,  65  Me.  92, 
the  corporate  purposes  of  the  convention  were  the  promulgation  and 
dill'usion  of  christian  knowledge  and  intelligence  through  its  agency 
as  an  institution  of  domestic  missions.  It  was  held  that  since  mis- 
sionary societies  have  been  repeatedly  held  to  be  charitable  institu- 
tions, the  Baptist  Missionary  Convention  came  within  that  class 
and  its  property  was  therefore  exempt  from  taxation. 

In  Commonwealth  v.  Young  Men's  Christian  Ass'n,  116  Ky.  711, 
the  corporate  purpose  of  the  association  was  to  seek  out  young 
men,  endeavor  to  bring  them  under  moral  and  religious  influence, 
secure  their  attendance  at  some  place  of  worship,  introduce  them  to 
members  and  privileges  of  the  association,  secure  them  proper  board- 
ing places  and  employment  and  to  surround  them  with  christian 
inlluences.  The  court,  in  holding  that  the  association  came  within 
the  constitutional  term  of  a  purely  public  charity,  said:  "Aside 
from  that  part  of  the  religious  work  done  by  the  appellees  which 
may  be  denominated  devotional,  they  undertake  to  bring  within 
the  religious,  moral  and  intellectual  influences  of  the  institution 
all  young  men,  —  and,  for  that  matter,  old  men  too,  —  for  their 
betterment,  improvement  and  protection  from  evil  influences  and 
consequences.  It  is  not  so  much  the  giving  of  alms  or  in  aid  of  the 
mendicant ;  the  endeavor  is  to  reach  the  boys  and  young  men  before 
they  need  alms  and  before  they  are  reduced  to  beggary,  and  by  train- 
ing their  minds  and  teaching  them  how  to  use  and  preserve  their 
bodies  and  how  to  live  useful  and  honest  lives,  to  save  them  from 
the  lower  grades  of  misfortune  so  familiar  in  the  utter  helplessness 
of  abject  poverty  and  disease  and  want.  This  is  accomplished  by 
the  institutions  keeping  open  attractive  quarters,  where  libraries 
of  useful  books,  current  magazines  and  newspapers,  innocent  games 
of  amusement,  a  gjTnnasium  for  the  exercise  and  development  of 
the  body,  and  night  schools  affording  additional  opportunities  to 
such  as  have  not  had  sufficient  advantages  and  education,  are  all 
accessible  to  whomsoever  will  avail  himself  of  them,  without  re- 
gard to  creed  or  nationality.  Lists  of  decent  boarding  houses  are 
kept,  to  which  strangers  are  directed.  Proper  acquaintances  and 
associations  are  formed  and  useful  and  moral  instruction  imparted. 
In  other  words,  they  help  the  helpless,  would  keep  the  innocent 
innocent,  and  endeavor  by  placing  clean  ideals  and  experiences  be- 
fore the  youth  to  have  them  adopt  them  in  their  lives.     They  aid 


218       CONGEEGATIONAL  S.  S.^  <feC.  V.  BOARD  OF  REVIEW.     [ciIAP.  H. 

the  uneducated  to  a  limited  but  practical  education.  This  is  all 
done  '  for  the  love  of  God  and  for  the  love  of  our  neighbor  in  the 
catholic  and  universal  sense,  free  from  the  stain  of  anything  that 
is  personal,  private  or  selfish." '' 

In  Davis  v.  Cincinnati  Camp-Meeting  Ass'n,  57  Ohio  St.  257, 
it  was  held  that  the  association  was  an  institution  of  purely  public 
charity,  and  that  the  lands  used  by  it  for  the  purpose  of  camp  meet- 
ings were  not  used  with  a  view  to  profit,  although  charges  were  made 
for  the  privileges  of  keeping  public  stables  and  of  keeping  boarding 
and  rooming  houses  on  the  grounds  for  the  accommodation  of 
persons  attending  the  meetings. 

Jn  Methodist  Episcopal  Church  v.  Hinton,  93  Tenn.  188,  it 
was  hold  that  the  publishing  department  of  the  Methodist  Episcopal 
Church  South  was  an  institution  of  purely  religious  and  charitable 
purposes  and  as  such  was  exempt  from  taxation.  The  corporation 
was  organized  for  the  manufacture  and  distribution  of  books,  tracts, 
periodicals  and  other  publications,  and  the  act  provided  that  the 
corporation  should  be  under  the  discipline  of  the  Methodist  Episco- 
pal Church  South,  according  to  its  laws  and  usages.  The  discipline 
of  the  church  provided  that  the  purpose  of  the  institution  was  to 
advance  the  cause  of  Christianity  by  disseminating  religious  knowl- 
edge and  useful  literature  and  scientific  information  in  the  form 
of  books,  tracts  and  periodicals.  It  further  provided  that  any 
surplus  remaining  after  the  sale  of  these  publications  was  to  be  used 
for  the  benefit  of  traveling,  supernumerary,  superannuated  and 
worn-out  preachers,  their  wives,  widows  and  children.  Its  annual 
business  amounted  to  $336,800,  about  1/156  part  of  which  was 
derived  from  the  printing  of  secular  books.  All  the  proceeds  were 
applied  to  the  purposes  named.  The  court  held  that  the  dissemina- 
tion of  the  gospel  and  the  advancement  of  Christianity  were  charitable 
purposes. 

In  Commonwealth  v.  Lynch,  115  Va.  745,  a  young  men's  chris- 
tian association  was  held  to  be  exempt  from  taxation,  regardless  of 
the  fact  that  it  charged  for  billiards,  for  bowling,  for  rooms  and  for 
annual  dues,  the  court  saying:  "If  the  dominant  purpose  and  use 
made  of  these  rooms  is  to  obtain  revenue  or  profit,  although  it  is 
to  be  applied  to.  the  general  objects  of  the  association,  it  would 
render  the  property  liable  to  taxation;  but  if  the  use  made  is  that 
for  which  the  association  was  incorporated  and  tends  immediately 
and  directly  to  promote  its  purposes,  then  its  use  is  within  the  pro- 
visions exempting  the  ^iroperty  from  taxation,  although  revenue 
or  profit  is  derived  tliercfrom  as  incident  to  such  cases.  .  ,  ,  ^lani- 
festly,  a  member  of  the  association  who  was  n  lodger  or  inmate  of 
the  building  would  be  in  a  better  situation  to  take  advantage  of 
the  privileges  ofi'ered  by  the  association  and  more  likely  to  take  ad- 
vantage of  them,  other  things  being  equal,  than  a  member  who 
lodged  elsewhere. 

In  the  Franklin  Square  House  v.  Boston,  118  Mass.  409,  the 
court  held  that  the  property  of  the  corporation,  which  was  organized 
to  provide  a  home  for  working  girls  at  a  moderate  cost,  was  exempt 


SECT.  IV.]        CONGEEGATIONAL  S.  8.,  &C.  V.  BOAKD  OF  UEVIEW.    219 

from  taxation  on  the  ground  that  it  was  a  public  charity,  even 
though  the  girls  paid  lor  their  keep,  the  corporation  having  no 
capital  stock  and  there  being  no  proiits  divided  among  its  members. 

In  Contributors  to  Pennsylvania  Hospital  v.  Delaware  County, 
169  Pa.  St.  ^05,  it  was  held  that  farms  purchased  and  permanently 
used  by  a  hospital  for  hosj)ital  purposes,  a.s  part  of  the  hospital 
plant  and  as  an  open  air  sanitarium,  and  incidentally  for  profit  to 
reduce  expenses,  are  exempt  from  taxation.  The  court  there  dis- 
tinguished American  Sunday  School  Union  v.  City  of  Philadelphia, 
supra,  saying :  "  But  property  which  is  used  directly  for  the  pur- 
poses and  in  the  operation  of  the  charity  is  exempt,  though  it  may 
also  be  used  in  a  manner  to  yield  some  return  and  thereby  reduce 
the  expenses." 

In  (iraud  Lodge  v.  Board  of  Review,  281  111.  480,  we  held  that 
the  Masonic  Home  for  the  care  and  support  of  dependent  Masons 
and  their  families  was  a  charitable  institution  and  that  the  land 
used  for  its  maintenance  was  devoted  to  a  charity,  and  we  further 
held  that  the  fact  that  the  benefits  are  restricted  to  Master  Masons, 
their  widows  and  orphans,  does  not  deprive  the  institution  of  the 
character  of  a  public  charity.  We  also  held  that  a  large  fann 
operated  by  the  grand  lodge  to  raise  produce  for  the  support  of  the 
inmates  of  the  home  was  exempt  from  taxation  as  the  property  of  a 
public  charity,  when  the  profits  from  the  farm  were  used  as  a  part 
of  the  charity  fund  for  the  maintenance  of  the  home.  We  there  said : 
"  The  primary  use  to  which  property  is  put  is  to  be  considered  in 
determining  whether  it  falls  within  the  terms  of  the  exemption. 
The  primary  purpose  and  use  of  the  lands  in  question  being  the 
maintenance  of  the  home  and  the  whole  net  income  being  devoted 
to  that  use,  they  come  within  the  statutory  definition  of  lands  ac- 
tually and  exclusively  used  for  charitable  or  beneficent  purposes  and 
not  leased  or  otherwise  used  with  a  view  to  profit." 

In  City  of  Chicago  v.  University  of  Chicago,  228  111.  605,  we  held 
that  the  dormitories  and  dining  halls  of  tlie  university  were  not  used 
with  a  view  to  profit,  even  though  the  students  paid  fees  for  lodging 
and  board,  and  that  therefore  the  property  was  exempt  from  a  water 
tax. 

In  Monticello  Female  Seminary  v.  People,  106  111.  398,  a  tract  of 
land  used  by  the  seminary  for  promenade  grounds,  gardens,  or- 
chards, pastures  and  crop  lands,  when  all  the  returns  from  the  lands 
were  used  to  supply  the  institution,  was  held  exempt  from  taxation 
under  our  statute. 

In  Sisters  of  St.  Francis  v.  Board  of  Review,  231  111.  317,  we 
held  that  the  St.  Francis  Hospital  was  an  institution  of  public 
charity  where  persons  who  are  without  money  or  property  are  cared 
for  without  charge,  and  that  it  did  not  lose  its  right  to  exemption 
from  taxation  by  reason  of  the  fact  that  the  patients  received  by 
it  who  are  able  to  pay  are  required  to  do  so,  or  by  reason  of  the  fact 
that  it  receives  contributions  from  oui<?ide  sources,  so  long  as  all 
the  money  received  by  it  is  devoted  to  the  general  purposes  of 
charity  and  no  portion  of  the  money  received  by  it  is  permitted  to 


220  IN  RE  AXLEKTON.  [cHAP.    II. 

inure  to  the  benefit  of  any  private  individual  engaged  in  managing 
tiie  charity.  AVe  further  held  it  was  no  objection  because  far  the 
greater  number  of  patients  paid  for  the  care  and  attention  they  re- 
ceived at  the  institution.  So  long  as  charity  was  dispensed  to  all 
those  who  needed  and  who  applied  for  it,  and  so  long  as  no  private 
gain  or  profit  came  to  any  person  connected  with  the  institution, 
and  so  long  as  it  did  not  appear  that  any  obstacle  of  any  character 
was  by  tlie  corporation  placed  in  the  way  of  those  who  might  need 
charity  of  the  kind  dispensed  by  the  institution,  the  institution  was 
a  charitable  and  beneficent  organization. 

We  recognize  the  rule  adopted  by  this  court  that  statutes  for  the 
exemption  of  property  from  taxation  are  to  be  strictly  construed 
against  tlie  exemption  and  in  favor  of  the  State  and  taxation, 
(First  Congregational  Church  v.  Board  of  Eeview,  supra;  North- 
western Universit}'  v.  Hanberg,  237  111.  185;  In  re  Walker,  200  id. 
566.)  On  the  other  hand,  charities  have  always  been  favored  in 
the  law  because  they  relieve  the  burdens  of  government,  and  if  ap- 
pellant fairly  comes  within  the  terms  of  the  exemption  clauses  of 
our  Eevenue  act  we  feel  inclined  to  grant  the  exemption.  It  seems 
clear  that  the  predominant  object  of  appellant  in  the  use  of  its  stock 
of  books  and  Sunday  school  supplies  in  Chicago  is  to  spread  the 
gospel  and  to  elevate  humanity  by  means  of  written  words  embodied 
in  its  religious  and  moral  books  and  in  its  Sunday  school  lesson- 
helps.  The  only  means  by  which  it  can  spread  this  gospel  in  printed 
form  is  by  distribution  of  its  books  and  Sunday  school  supplies. 
The  purposes  of  appellant  are  directly  carried  out  by  the  distribution 
of  its  books  and  supplies,  and  the  receipt  of  the  money  from  sales 
is  incidental  and  secondary'.  It  is  not  the  profits  from  the  sale  of 
the  books  that  accomplish  the  purposes  of  appellant,  but  it  is  the 
distribution  of  the  books,  periodicals  and  lesson-helps,  —  and  there- 
fore the  use  of  the  property  sought  to  be  taxed,  —  that  directly 
accomplishes  appellant^s  religious,  charitable  and  beneficent  purposes. 

Tlie  application  of  the  appellant  for  exemption  from  taxation 
of  the  property  in  question  sbould  have  been  granted,  and  there- 
fore the  decision  of  the  board  of  review  of  Cook  county  is  set  aside. 

Decision  set  aside. 

Me.  Chief  Justice  Dunn,  dissenting. 


In  ee  ALLEETON. 
supeeme  couet  of  illinois.     1921. 

[Reported  296  III.  340.] 

Duncan,  J.  This  is  an  application  by  the  tax  commission  of 
Illinois  for  an  order  setting  aside  and  annulling  a  decision  of  the 
board  of  review  of  Piatt  County  exempting  about  1050  acres  of  land 
in  said  county  from  taxation  on  the  petition  of  Eobert  Allerton, 
William  Dighton,  W.  F.  Lodge,  Elizabeth  Phalen  and  A.  E.  Bur- 
wash    (the  latter  being  farm  adviser   of  the   Piatt   County   farm 


SECT.   IV.]  IN   KE   ALLERTON.  221 

bureau),  irustoes  and  grantees  uuJer  a  certain  trust  deed  dated 
November  21,  191U,  executed  by  Kobert  AUerlon,  conveying  said 
land.  The  board  of  review  filed  a  copy  of  the  petition  presented  to 
it,  together  with  the  transcript  of  the  statement  of  facts  considered 
by  it,  and  also  of  its  order.  The  tax  commission  refused  to  confirm 
the  order  of  the  board  of  review  and  has  applied  to  this  court  for  an 
order  setting  the  same  aside. 

The  only  evidence  or  facts  before  the  board  of  review  were  those 
contained  in  the  petition,  which  was  verified  by  affidavit,  and  the 
trust  deed,  which  was  made  an  exhibit  and  a  part  of  the  petition. 
The  petition  avers  the  delivery  of  the  trust  deed  to  the  trustees  in 
trust  for  the  purposes  and  upon  the  terms  and  conditions  therein 
set  forth ;  that  the  trustees  are  in  the  possession  of  the  land  therein 
described  and  have  had  such  possession  since  November  21,  1919; 
that  the  land  is  assessed  in  the  name  of  Eobert  Allerton  and  taxes 
extended  for  the  year  1920;  that  under  the  terms  of  the  deed  the 
real  estate  is  to  be  used  for  the  purpose  of  creating  and  maintaining 
in  said  county  an  old  people's  home,  a  county  tuberculosis  sanitarium 
and  a  model  and  experimental  farm;  that  the  entire  net  income  de- 
rived from  the  use  of  the  real  estate  is  to  be  applied  to  the  mainte- 
nance of  the  old  people's  home;  that  no  private  person  will  obtain 
any  pecuniary  gain  or  profit  from  the  use  of  said  premises,  and  that 
the  real  estate  and  all  income  from  the  same  will  be  used  for  chari- 
table and  public  purposes. 

In  the  preamble  of  the  deed  it  is  recited  that  it  is  the  desire  of 
the  grantor  to  create  a  memorial  to  his  father,  Samuel  "W.  Allerton, 
to  be  known  as  the  Samuel  "\V.  Allerton  Farm  ]\Iemorial,  and  a  me- 
morial to  his  friend  John  Phalen,  to  be  known  as  the  John  Phalen 
Old  People's  Home  Memorial.  The  deed  declares  that  the  grantor 
and  the  four  grantees  named  in  the  deed  as  trustees,  and  their  suc- 
cessors as  trustees,  do  and  shall  own  and  hold  the  real  estate  in  trust 
for  the  purposes  and  upon  the  terms  and  conditions  therein  set  forth, 
and  conveys  an  undivided  four-fifths  of  the  land,  reserving  to  him- 
self an  undivided  one-fifth.  It  provides  for  the  selection  of  trustees 
as  successors  upon  the  death,  resignation,  refusal  or  inability  of  any 
of  the  trustees  to  act.  It  declares  that  it  is  the  intention  of  the 
grantor,  as  soon  as  in  his  judgment  the  same  may  be  properly  done, 
to  erect  on  a  certain  named  site  of  the  land  a  suitable  building  to  be 
used  as  an  old  people's  home,  and  there  shall  be  reserved  and  used 
about  such  home,  for  necessary  grounds  and  gardens,  such  quantity 
of  land  as  the  trustees  shall  determine  upon,  and  that  all  of  the 
remainder  of  said  land,  except  so  much  as  may  be  hereafter  con- 
veyed for  a  hospital  as  in  the  deed  provided,  shall  be  run  as  a  model 
and  experimental  farm  in  demonstration  of  the  most  approved 
methods  of  farming,  the  same  to  be  managed  by  the  county  agricul- 
tural or  farm  adviser  of  the  Piatt  county  farm  bureau  or  such  other 
person  as  the  trustees  may  name,  subject  to  the  direction  and  control 
of  the  trustees.  It  further  directs  that  the  net  income  from  the 
land  shall  be  deposited  or  invested  by  the  trustees  in  such  securities 
as  they  may  deem  wise,  and  such  fund  be  permitted  to  accumulate  as 


222  IN  HE  AI.LEKTON.  LCIIAP.    II. 

a  fund  for  the  proper  -working  and  managing  of  the  farm,  aLd  wlien 
the  trustees  shall  deem  a  sulUeieut  fund  has  heen  accumulated  for 
such  purposes,  then  the  net  income,  after  payment  of  all  expenses 
connected  with  the  management  and  running  of  tlie  farm,  shall  be 
used  for  the  upkeep  and  maintenance  of  the  old  people's  home.  The 
fourth  clause  declares  that  after  the  completion  of  tlie  buildings  for 
the  home  and  after  the  accumulation  of  sui!icient  funds  as  aforesaid 
and  the  opening  of  the  home  for  use,  there  will  be  received  and  kept 
at  such  home  such  old  people  of  either  sex,  residents  of  said  county, 
as  the  board  may  decide  to  receive  and  accept  as  residents.  The  con- 
ditions for  admission  of  such  persons  as  residents  are,  that  those 
admitted  shall  pay  to  said  trustees,  for  such  use  as  they  may  see  fit 
in  connection  with  the  running  of  the  home,  a  sum  of  money,  not  to 
exceed  $500,  to  be  determined  upon  by  the  trustees,  and  anyone 
paying  such  sum  may  be  admitted  to  the  home  and  entitled  to  re- 
main as  a  resident  therein  for  his  or  her  life.  The  trustees  are 
vested  with  the  same  power  and  authority  as  are  commonly  vested 
in  boards  of  directors  of  corporations  of  Illinois,  and  they  may  make 
such  rules,  regulations  and  by-laws  to  govern  and  regulate  the  man- 
agement and  control  of  the  farm  and  the  home  as  they  may  deem 
advisable,  and  alter  the  same  from  time  to  time  as  they  see  fit,  and 
elect  officers,  etc.  The  fifth  clause  declares  that  it  has  been  the 
grantor's  desire  to  give  to  Piatt  county  the  necessary  land  for  a  site 
for  the  establishment  and  maintenance  of  a  county  tuberculosis  sani- 
tarium, and  that  the  deed  is  subject  to  the  provisions  that  there  shall 
be  conveyed  by  the  trustees  to  said  county,  or  to  such  organization 
or  corporation,  for  hospital  purposes,  as  they  shall  decide  upon, 
whenever  the  county  or  such  organization  or  corporation  is  ready, 
in  the  judgment  of  the  trustees,  to  receive  the  same,  and  erect  the 
necessary  buildings  for  such  sanitarium  or  hospital  thereon.  The 
deed  specifies  the  land  upon  which  the  trustees  may  locate  such  sani- 
tarium, and  then  provides  that  the  income  arising  from  said  land  so 
to  be  conveyed  is  to  be  used  by  the  trustees  for  the  purposes  first 
mentioned  in  the  deed  until  such  conveyance  is  made. 

There  is  no  averment  in  the  petition  that  any  part  of  the  real 
estate  in  question  is  being  actually  and  exclusively  used  as  an  old 
people's  home.  The  clear  indications  from  the  petition  and  from 
the  trust  deed  are  that  no  part  of  the  land  was  being  actually  and 
exclusively  used  either  for  an  old  people's  home  or  for  agricultural 
purposes,  as  a  model  and  experimental  farm  in  demonstration  of  the 
most  approved  methods  of  farming,  at  the  time  it  was  assessed. 
The  most  that  can  be  said  from  the  record  is  that  the  land  is  to  be 
or  will  be  used  at  some  time  in  the  future  for  such  purposes.  The 
deed  is  made  subject  to  an  expressed  wish  of  the  grantor  at  some 
time  to  deed  a  part  of  the  land  described  in  the  deed  to  the  county 
or  some  organization  or  corporation  for  the  establishment  and  main- 
tenance of  a  county  tuberculosis  sanitarium  or  for  hospital  purposes. 
In  case  such  deed  is  made,  the  land  so  rleeded  will  not  then  be  any 
longer  a  part  of  the  land  to  be  managed  by  the  trustees.  The  sani- 
tarium or  hospital  is  to  be  built  and  established  by  the  county  or 


SECT.    IV.]  IN    HE   ALLEU.LON.  223 

borne  organization  or  corporation,  and  not  until,  in  the  judgment  of 
Uie  trubtees,  such  county,  organization  or  corporation  is  ready  to 
receive  tlie  gift  and  to  erect  the  necessary  buildings.  There  is  no 
showing  in  this  record  that  there  is  even  an  intention  on  the  part  of 
any  of  such  organizations  to  accept  the  gift  upon  the  terms  proposed 
or  to  be  proposed.  ,So  it  is  clear  that  there  is  not  an  old  people's 
home  or  sanitarium  or  hospital  on  the  land  in  question,  —  or  at 
least  there  is  no  showing  tliat  any  one  of  such  institutions  is  in 
actual  existence  on  the  land. 

By  section  3  of  article  9  of  the  constituliouMt  is  provided  that 
such  property  as  may  be  used  exclusively  for  agricultural  and  horti- 
cultural societies  and  for  charitable  purposes  may  be  exempted  from 
taxation,  but  only  by  general  law.  Paragraph  7  of  section  2  of  tiie 
Eevenue  act  (Ilurd's  Stat.  1917,  p.  2421),  provides  that  "all  prop- 
erty of  institutions  of  public  ciiarity,  all  property  of  beneficent  and 
charitable  organizations,  whether  incorj)orated  in  this  or  any  other 
State  of  tlie  United  States  and  all  property  of  old  people's  homes 
when  such  property  is  actually  and  exclusively  used  for  such  chari- 
table and  beneficent  purposes,  and  not  leased  or  otherwise  used  Avith 
the  view  to  profit,"  shall  be  exempt  from  taxation.  The  Constitu- 
tion does  not,  of  itself,  exempt  any  property  in  this  State  from 
taxation  but  simply  provides  what  property  may  be  exempted  from 
taxation  by  general  law.  It  is,  however,  a  limitation  upon  the 
right  of  the  legislature  to  legislate  upon  such  question  of  exemption. 
( People  V.  Deutsche  Gemeinde,  249  111.  132.)  The  Constitution 
contemplates,  and  the  statute  provides,  that  only  property  actually 
and  exclusively  used  for  charitable  purposes  shall  be  exempt  from 
taxation.  A  law  claimed  to  exempt  property  from  taxation  must  be 
strictly  construed,  and  it  devolves  upon  those  claiming  that  specific 
proj)erty  is  thus  exempt  to  clearly  show  that  it  is  within  the  con- 
templation of  the  law.  (People  f."  Wabash  Railway  Co.  138  111.  85.) 
A  trust  fund  possessed  and  held  by  trustees  or  real  estate  held  for 
charitable  purposes,  not  then  actually  and  exclusively  used  for 
charitable  purposes  but  only  possessed  and  held  for  such  use  in  the 
future,  is  not  exempt  from  taxation  under  the  provision  of  the  statute. 
(Board  of  Directors  v.  Board  of  Review,  248  111.  590.)  The  find- 
ing of  the  board  of  review  in  this  case  that  the  real  estate  "is  to  be 
used"  for  the  various  purposes  is  not  a  sufficient  finding  of  fact  to 
exempt  such  property  from  taxation,  even  if  it  be  conceded  that  the 
actual  and  exclusive  use  of  the  property  for  the  various  purposes 
mentioned  in  the  trust  deed  is  sufficient  to  exempt  it  from  taxation. 

The  tenth  paragraph  of  section  2  of  the  Revenue  act  provides  that 
all  property  which  mav  he  used  exclusivelv  by  societies  for  agri- 
ciilfurai  purposes,  and  not  for  pecuniary  profit,  shall  be  exempt  from 
taxation.  The  record  sliows  that  the  real  estate  in  this  case  is  to  be 
managed  by  the  county  agricultural  or  farm  adviser  of  the  Piatt 
county  farm  bureau  as  a  model  and  expori mental  farm  in  demon- 
stration of  the  most  approved  methods  of  fanning,  but  it  does  not 
show  that  it  was  held  and  used  for  such  purpose  at  the  time  it  was 
assessed.     The  proof,  therefore,  does  not  show  that  the  property  is 


224       PRESIDEXT^  &C.  OF  HAllVAED  COL.   V.  ASSESSOES.        [CHAP.  II. 

exempt  from  taxation,  as  found  by  the  board  of  review,  although  it 
does  further  show  that  it  is  not  to  be  used  for  pecuniary  profit  by 
any  individual.  It  necessarily  follows,  then,  that  none  of  the  real 
estate  in  question  was  exempt  from  taxation  at  the  time  the  order 
of  the  board  of  review  was  entered. 

Some  question  is  raised  by  the  Attorney  General  on  behalf  of  the 
tax  commission  as  to  whether  or  not  the  property,  or  any  part  of  it, 
would  be  exempt  from  taxation  if  it  were  actually  and  exclusively 
used  for  the  purposes  mentioned  in  the  trust  deed,  —  that  is,  for  an 
old  peoples'  home  or  for  a  model  farm,  —  at  the  time  the  petitioners' 
application  for  exemption  was  made.  A  solution  of  this  question  is 
not  necessary  to  the  decision  of  the  case,  and  we  prefer  not  to  pass 
upon  it  until  such  time  as  the  property  may  be  actually  and  ex- 
clusively used  for  such  purposes,  under  a  full  showing  of  the  facts 
at  such  time  and  upon  further  briefs  and  arguments. 

For  the  foregoing  reasons  the  decision  of  the  board  of  review  is 
set  aside  and  annulled. 

.   Decision  set  aside. 


PEESIDENT  AND  FELLOWS  OF  HAEYAED 

COLLEGE  V.  ASSESSOES  OF  CAMBEIDGE. 

SuPKEME  Judicial  Court  of  Massachusetts.     1900. 

[Reported  175  Mass.  145.] 

'~'  Morton,  J.  This  is  an  action  to  recover  back  taxes  that  were  as- 
sessed by  the  respondents  on  certain  parcels  of  real  estate  belonging 
to  the  petitioner  situated  in  Cambridge,  which  the  petitioner  con- 
tends were  exempt  from  taxation  under  Pub.  Sts.  c.  11,  §  5,  cl.  3, 
as  amended  by  St.  1889,  c.  465. 

The  case  was  heard  by  a  justice  of  the  Superior  Court,  without 
a  jury,  on  what  are  called  agreed  facts,  but  which  we  interpret  as 
authorizing  him  to  draw  such  inferences  as  he  thought  warranted; 
he  held  that  the  property  was  exempt,  and  found  for  the  petitioner 
for  the  entire  amount,  and  reported  the  case  to  this  court  in  such 
a  manner  as  to  present  the  question  of  the  assessibility  of  each  of 
the  parcels. 

"We  think  that  the  ruling  of  the  Superior  Court  was  right,  and 
that  all  of  the  property  was  exempt  from  taxation.  Many  of  the 
principles  and  considerations  and  authorities  applicable  to  this  case 
have  been  stated  and  referred  to  somewhat  at  length  in  Phillips 
Academy  v.  Andover,  175  Mass.  118,  and  we  do  not  deem  it  neces- 
sary to  repeat  them  here. 

The  history  of  Harvard  College  and  of  like  institutions  shows, 
we  think,  that  from  the  beginning  dormitories  and  dining-halls  have 
been  furnished  by  the  college  for  the  use  of  the  students,  and  have 
been  regarded  as  devoted  to  college  purposes.  In  addition  to  this, 
the  effect  of  the  decisions  in  Wesleyan  Academy  v.  Wilbraham,  99 


SECT.  IV.]        PRESIDENT,  A:C.  OF  HARVARD  COL.  V.   ASSESSOES.        225 

Mass.  599,  and  Mount  Ilermon  Boys'  School  v.  Gill,  145  Mass.  139, 
is  plainly  to  exempt  juoperty  applied  to  such  uses.  See  also  Yale 
University  v.  New  Haven,  71  Conn.  316  and  State  v.  Koss,  4  Zabr. 
497.  We  do  not  think  that  it  makes  any  dilference  in  principle 
that  the  college,  instead  of  furnishing  board  itself,  provides  a  place, 
without  rent  or  compensation  in  any  form,  or  a  lease  or  any  agree- 
ment for  a  fixed  term,  for  the  use  of  students  who  club  together  for 
the  purpose  of  obtaining  for  themselves,  Avith  the  assistance  of  the 
college,  food  at  cost.  The  property  so  used  is  occupied,  it  seems  to 
us,  for  the  purposes  for  which  the  college  was  incorporated.  Many 
particulars  are  stated  in  the  agreed  facts  in  regard  to  No.  17  Kirk- 
land  Street,  which  is  the  parcel  that  we  are  now  considering,  which 
we  do  not  think  it  ne(,'essary  to  refer  to,  as  it  seems  to  us  plain  that 
the  property  is  exempt  from  taxation. 

The  history  of  the  college  and  of  the  legislation  relating  to  it 
also  shows,  we  think,  that  the  president's  house,  during  the  earlier 
years  of  the  college  at  any  rate,  Avas  regarded  as  almost,  if  not  quite, 
as  necessary  for  the  purposes  of  the  institution  as  dormitories  and 
dining-halls.  Public  money  was  appropriated  by  the  general  court 
to  buikl  it  as  it  had  been  to  build  the  college  buildings,  and  the  oc- 
cupancy of  it  was  evidently  considered  as  official.  The  present  house 
was  built  with  funds  given  expressly  for  the  purpose  of  erecting 
a  dwelling-house  for  the  president  and  his  successors  in  office,  and 
since  it  was  built  has  been  occupied  by  them  and  their  families.  The 
president  is  required  to  live  in  Cambridge.  He  pays  no  rent  or 
compensation  for  the  use  and  occupation  of  the  house,  and  has  no 
lease,  but  occupies  it,  if  he  chooses,  so  long  as  he  performs  the  duties 
of  president.  It,  with  several  of  the  other  houses  that  were  taxed, 
namely,  Nos.  11,  25,  and  37  Quincy  Street,  this  being  17  Quincy  St., 
is  now  and  was  at  the  time  of  the  assessment  within  the  college 
grounds,  and  the  premises  are  kept  in  order  and  repair,  including 
grading,  gravelling  the  walks,  fertilizing,  and  repairing  and  cleaning 
furnace,  removal  of  ashes,  etc.,  under  the  direction  of  the  college 
superintendent  of  buihlings  and  the  superintendent  of  grounds  and 
at  the  college  expense.  The  whole  lower  floor,  "  except  possibly  the 
kitchen,  is  used  for  Class  Day,  Commencement,  and  other  receptions, 
and  for  many  hospitalities  incident  to  the  president's  functions." 
"  The  hall  and  drawing-room  are  also  used  for  the  convenience  of 
the  college  and  the  president  for  meetings  of  the  faculty  and  com- 
mittees, for  conferences  with  university  officers  and  students,  for 
calls  on  .university  business,  and  for  the  annual  meetings  of  the  cor- 
poration at  which  degrees  are  voted."  Tlie  rest  of  tlie  house  consists 
of  the  usual  living  and  housekeeping  rooms  and  chambers,  and  is 
iised  by  the  president  and  his  family  as  a  dwelling-house. 

It  seems  to  us  that  on  these  facts  the  judge  who  heard  the  case 
was  justified  in  finding  that  the  dominant  or  principal  purpose  of 
the  occupancy  by  the  president  was  that  for  which  the  college  was 
incorporated.  His  occupation,  it  could  be  fairly  said,  was,  so  far  as 
the  university  was  concerned,  official,  as  the  head  of  the  universitv, 
just  as,  for  instance,  the  President  occupies  the  White  House,  and 


226       PRESIDENT,  AC.  OF  HARVARD  COL.    (-.ASSESSORS.        [cilAT.   II. 

not  in  any  just  sense  primarily  or  principally  for  his  owti  private 
benefit. 

The  remaining  six  houses  are  occupied  by  professors,  three  of 
whom  are  deans,  each  charged  with  a  portion  of  the  administrative 
duties  formerly  devolving  exclusively  on  the  president.  Three  of 
the  houses,  as  already  observed,  are  witliin  the  college  grounds.  All 
of  tlieiH  are  kept  in  order  and  repair  at  the  expense  of  the  college 
in  the  same  manner  and  to  the  same  extent  as  the  house  occupied 
by  the  president.  The  halls  and  drawing-rooms  in  all  of  them,  except 
No.  37  Quincy  Street,  occupied  by  Professor  Langdell,  are  used, 
partly  for  the  convenience  of  the  college  and  partly  for  that  of  the 
professor,  for  different  college  uses  and  purposes  incident  to  his 
duties  as  professor,  chairman  of  committees,  dean,  and  the  like.  In 
the  case  of  No.  11  Quincy  street,  tlie  drawing-room  and  hall  are 
used  by  the  professor  for  regular  college  exercises  during  the  college 
year.  In  the  case  of  No.  16  Quincy  Street,  the  professor  is  Chairman 
of  the  Freshman  Advisory  Committee  of  the  Faculty  of  Arts  and 
Sciences,  consisting  of  about  twenty  persons,  and  he  has  a  great 
number  of  interviews  in  his  drawing-room  with  students  and  parents. 
In  the  case  of  25  Quincy  Street,  the  college  in  1892  made  additions 
and  improvements  at  its  own  expense  so  as  to  make  the  house 
more  convenient  for  the  transaction  of  college  business  and  the  en- 
tertaining of  guests  on  college  account.  The  additions  as  well  as 
the  drawing-room  and  hall  are  used  for  different  college  purposes 
incident  to  the  several  duties  of  the  occupying  professor.  The  parts 
of  the  houses  to  which  no  references  has  been  made  are  used  by  the 
professors  and  their  families,  and  consist  of  the  usual  living  and 
housekeeping  rooms  and  chambers.  In  the  fall  of  the  year,  when 
the  salaries  of  the  professors  are  voted,  they  are  fixed  at  certain 
amounts  "  and  the  use  of  house,  $750,"  or  whatever  the  sum  may 
be ;  otherwise  the  professor  "  pays  no  rent  and  has  no  other  agree- 
ment for  his  occupation  and  use  of  said  house,  but  uses  it  as  such 
professor."  We  think  that  it  was  competent  for  the  justice  who 
heard  the  case  to  find  on  these  facts  that  the  dominant  considera- 
tion in  regard  to  the  occupation  of  the  houses  by  the  several  pro- 
fessors had  references  to  the  performance  of  their  duties  as  officers 
and  professors,  rather  than  to  the  private  benefit  which  they  would 
receive  in  the  way  of  homes  for  themselves  and  their  families,  and 
that  he  was  justified  in  finding  that  the  occupancy  was  for  the  pur- 
poses for  which  the  college  was  incorporated. 

Tliis  case  is  distinguisliable,  we  think,  from  Williams  College  v. 
Williamstown,  167  Mass.  505.  In  the  first  place,  there  was  no 
question  in  that  case  as  to  the  taxation  of  a  building  used  for  a  dor- 
mitory and  dining-hall  for  the  students.  In  the  next  place,  the 
occupation  by  the  professors  in  this  case  clearly  lacks  the  exclusive 
character  which  it  was  held  to  have  in  that  case.  In  the  third  place, 
no  use  for  college  purposes  is  shown  to  have  been  made  of  the 
houses  occupied  by  the  professors  in  that  case  as  appears  in  this 
case.  In  the  fourth  place,  the  sums  fixed  as  compensation  for  the 
use  of  the  houses  in  that  case  were  paid  and  received  as  rent,  and 


SECT.  IV.]  I'KOPLE  ex  vel.  Mi/.i'Aii  i-oix;k  l\  burke.  227 

were  so  treated  by  the  court.  In  this  case,  the  sums  fixed  for  the 
use  of  the  houses  were  allowed  as  part  of  the  compensation  for  ser- 
vices as  professors,  thus  tending  to  show,  as  said  in  Massachusetts 
General  Hospital  r.  Soniorville,  101  Mass.  31JJ,  '.i2i>,  that  -  the  occu- 
pation was  one  merely  hy  reason  of  service,"  and  that  the  value  put 
upon  the  use  of  the  house  was  merely  "  a  convenient  mode  of  ad- 
justing the  compensation  .  .  .  and  not  as  the  income  or  fruit  of 
an  estate  grunted.''  Lastly,  this  case  seems  to  be  one  where  the 
buildings  are  occupied,  as  it  was  said  in  Peirce  r.  Cambridge,  3 
Cush.  Gil,  613,  614,  "with  the  permission  of  the  college,  and  with- 
out [the  professors]  liaving  any  estate  therein,  or  paying  any  rent 
therefor,"  in  which  case  the  property  would  be  exempt  from  taxa- 
tion.   See  also  White  v.  Baylcy,  10  C.  B.  (N.  S.)  227. 

The  respondents  rely  on  Third  Congregational  Society  v.  Spring- 
field, 147  ]\Iass.  396,  which  was  a  case  where  a  parsonage  was  de- 
clared to  be  unexempt.  The  court  held  that  religious  societies  did 
not  come  within  the  clause  that  we  have  been  considering,  but  within 
the  seventh  clause,  and  that  the  exemption  was  limited  to  houses 
of  religious  worship  only.    That  case  is  not  applicable  to  this. 

We  think  that  the  judgment  of  the  Superior  Court  should  be 
affirmed. 

So  ordered. 


PEOPLE  ex  rel.  MIZPAH  LODGE  v.  BURKE. 
Court  of  Appeals  of  New  York.     1920. 

[Reported  228  ^Y.  Y.  245.] 

Pound,  J.  Relator  claims  to  be  exempt  from  general  taxation  on 
its  real  property  under  subdivision  T  of  section  4  of  the  Tax  Law 
(Laws  1909,  c.  62,  as  amended;  Consol.  Laws,  c.  60),  It  is  an  un- 
incorporated subordinate  lodge  of  the  Independent  Order  of  Odd 
Fellows  of  the  State  of  New  York.  It  owns  real  estate  in  the  city 
of  Buffalo  on  which  it  has  a  building  containing  halls,  lodge  room, 
kitchen,  and  other  rooms,  which  it  uses  itself  part  of  the  time  and 
also  leases  regularly  to  tenants  —  fraternal  bodies  or  other  associa- 
tions—  for  their  meetings  and  socia4  gatherings. 

Exemption  is  sought  on  the  groimd  that  relator,  "organized  ex- 
clusively for  the  moral  or  mental  improvement"  of  its  members  and 
for  "  religious,  charitable,  benevolent,  and  educational  purposes," 
uses  its  property  "  exclusively  for  carrying  out  thereupon "  such 
purposes  of  its  organization. 

The  referee  has  not  found  the  facts  which  sustain  the  contention 
of  exclusive  use.  We  think  the  practice  of  leasing  the  propertv  to 
others  destroys  the  exclusive  nature  of  the  use  for  the  purposes  of 
its  own  organization.    The  meaning  of  the  Tax  Law  is  that  if  rents, 


228      TEOPLE  CX    rcl.    MIZPAH  lodge  v.    BUEKE.      [chap.  II. 

profits,  or  income  are  derived  from  the  property,  no  exemption  under 
tliis  clause  may  be  claimed. 

"It  is  the  exclusive  use  of  the  real  estate  for  carrying  out  thereupon 
one  or  more  of  the  purposes  of  the  incorporation  of  the  relator  which 
confers  the  right  of  exemption,  and  not  the  benefits  accruing  to  it 
and  its  useful  -work  from  the  income  derived  from  others  in  consid- 
eration of  their  use  of  the  real  estate -^or  their  purposes."  (People 
ex  rel.  Young  Men's  Ass'n  v.  Sayles,  32  App.  Div.  197,  202,  affirmed 
on  opinion  below  157  N.  Y.  677.) 

Eelator  is  primarily  a  lodge  of  a  fraternal  order  and  incidentally 
a  landlord.  Its  premises  are  used  in  part  time  for  its  own  fraternal 
purposes  and  in  part  are  "leased  or  otherwise  used  for  other  pur- 
poses" to  produce  an  income  to  promote  its  own  purposes.  The 
fact  that  some  or  all  of  its  tenants  are  other  fraternal  bodies  does 
not  alter  the  case.  The  controlling  fact  is  the  receipt  of  rents,  profits, 
and  income.  (People  ex  rel.  Adelphi  College  v.  Wells,  97  App. 
Div.  312;  affirmed  180  X.  Y.  534.) 

"Although  we  ought  not,  perhaps,  to  give  to  the  word  *  exclu- 
sively' an  interpretation  so  literal  as  to  prevent  an  occasional  use  of 
the  relator's  property  for  some  purpose  other  than  one  or  more  of 
those  specified,  yet  the  policy  of  the  law  is  to  construe  statutes  exempt- 
ing property  from  taxation  somewhere  rigidly,  and  not  to  permit  such 
exemption  to  be  established  by  doubtful  implication.  In  other  words, 
the  legislative  intent  to  exempt  any  property  from  taxation  can  never 
be  presumed,  but  must  always  be  expressed  in  language  so  clear  as  to 
admit  of  no  argument."  (People  ex  rel.  D.  K.  E.  Society  v.  Lawler, 
74  App.  Div.  553,  557;  affirmed  179  X.  Y.  535.) 

Eelator  seeks  exemption,  secondly,  on  the  ground  that  it  is  a  fra- 
ternal association  "  created  to  build  and  maintain  a  building  or  build- 
ings for  its  meetings  .  .  .  and  for  the  accommodation  of  other  fra- 
ternal bodies  or  associations,"  and  that  it  applies  its  net  income  to  a 
home  for  indigent  Odd  Fellows,  their  widows  and  orphans.  The  stat- 
ute exempts  the  real  property  of  associations  which  answer  this 
description.  But  relator  was  created  for  the  purposes  of  an  Odd 
Fellows'  lodge,  nor  does  it  now  exist  for  the  purpose  of  leasing 
its  property.  It  has  the  power  to  lease  such  property  (Benevolent 
Orders  Law  [Consol.  LaAvs,  c.  3]  §  3),  but  its  primary  and  in- 
herent purpose  is  the  fraternal  end  or  aim  itself,  which  it  must 
keep  in  view,  while  its  powers  are  merely  the  incidental  authority, 
capacity,  or  right  which  it  possesses  to  do  such  act  as  may  effectuate 
its  purpose. 

When  we  infer  from  the  mere  power  to  hold  and  lease  real  property 
conferred  on  lodge  trustees  by  section  3  of  the  Benevolent  Orders  Law, 
that  relator  was  "  created  to  build  a  meeting  place  for  itself  and  other 
fraternal  bodies  or  associations/'  we  confuse  the  meaning  of  purpose 
and  power,  which  are  not  synonymous,  and  lose  sight  of  the  true  pur- 
pose for  wnich  an  Odd  Fellows'  Lodge  is  created,  which  is  not  to 
maintain  a  hall  for  itself  and  to  lease  lodge  rooms  and  other  quarters 
to  fraternal  and  other  associations  for  their  social  and  festive  func- 
tions, but  to  promote  the  welfare  of  its  own  members  as  a  fraternal 


SECT.     IV.]        CAAIBEIDCii:     V.     COUNTY     COMMISSIOXERS.  229 

organization.  Corporations  or  associations  may  be  created  for  tiie 
purpose  of  building  and  leasing  such  a  meeting  place  as  the  statute 
contemplates,  but  mere  subordinate  lodges  of  fraternal  orders  are  not 
created  for  that  jjurpose.  The  disposition  of  the  net  income  to  char- 
itable purposes  does  not  help  the  case.  Relator's  enterprise  is  char- 
itable rather  than  mercenary,  but  it  is  not  the  kind  of  charitable 
enterprise  that  comes  within  the  letter  of  the  statute.  If  it  had  been 
the  intention  of  the  Legislature  to  exempt  from  taxation  all  lodge 
Ituiblings  the  net  income  of  which  was  devoted  to  charitable  purposes, 
it  would  doubtless  have  expressed  such  intention  without  the  use  of 
unnecessary  or  ambiguous  words.  So  long  as  the  State  has  not  clearly 
indicated  its  deliberate  purpose  to  look  with  special  favor  upon  the 
use  of  lodge  property  for  all  the  purposes  that  relator  uses  its  prop- 
erty for,  we  may  not  construe  the  law  for  its  benefit. 

.  The  referee  has  found  as  a  finding  of  fact,  and  the  findings  have 
been  unanimously  affirmed,  that  the  relator  was  created  to  build  and 
maintain  its  building  for  the  purposes  indicated.  This,  however,  is  a 
conclusion  of  law  in  conflict  with  the  facts  found,  and  not  controlling 
on  this  appeal. 

The  orders  should  be  reversed,  and  the  writ  of  certiorari  dismissed, 
with  costs  in  all  courts. 


CAMBRIDGE  v.  COUNTY  COMMISSIONERS. 
Supreme  Judicial  Court  of  Massachusetts.     1874. 

[Reported  114  Mass.  337.] 

Colt,  J.  The  upper  stories  of  Holyoke  House,  a  building  o\\Tied 
by  the  President  and  Fellows  of  Harvard  College,  are  appropriated 
to  the  students,  and  used  for  purposes  within  the  college  charter; 
they  are  therefore  exempt  from  taxation.  Gen.  Sts.  c.  11,  §  5.  The 
lower  story,  which  is  used  for  other  puropses,  is  not  exempt.  The 
question  upon  this  petition  for  a  cortiorari  is  whether  the  rule 
adopted  by  the  assessors  of  Cambridge,  for  ascertaining  the  taxable 
value  of  the  last  named  portion,  was  erroneously  changed  by  the 
county  commissioners  on  a])peal  to  them  by  the  college. 

The  valuation  of  the  assessors  was  made  by  adding  the  value  of  the 
land  to  the  value  of  the  lower  story,  including  the  foundations,  as  if 
there  had  been  a  building  of  only  one  story,  the  whole  of  which  was 
subject  to  taxation.  But  the  county  commissioners  estimated  the  taxa- 
able  value  of  the  property  at  one  third  of  the  value  of  the  whole 
building,  together  with  one  half  of  the  value  of  the  land,  and  or- 
dered the  cit}"^  to  remit  a  sum  declared  by  them  to  be  in  excess  of  a 
just  and  fair  assessment. 

The  building  and  land,  it  is  said,  must  be  treated  for  the  purpose 
of  the  valuation  as  an  organized  whole.  The  upper  stories  cannot 
exist  without  the  land  and  foundations  to  support  them.  Some  part 
of  the  value  of  the  lower  story  must  enter  into  the  value  of  the  upper 


230  EVANGELICAL    BAPTIST    <feC.    SOC.    V.    BOSTON.        [ciIAP.    II. 

stories,  while  the  upper  part  of  the  biiikling  must  in  the  same  way 
be  more  or  less  important  and  valuable  to  the  lower.  To  some  ex- 
tent the  land  and  foundations  are  appropriated  to  college  purposes, 
and  their  whole  value  cannot  fairly  or  legally  be  annexed  to  the 
lower  story  of  the  building. 

It  was  within  the  authority  of  the  county  commissioners  to  revise 
an  assessment  made  upon  a  wrong  principle ;  and  it  is  not  shown 
by  the  petitioners  that  any  error  was  matle  in  the  rule  adopted  by 
them.  The  principle  upon  which  the  apportionment  was  made  is  not 
stated.  It  may  have  been  made  according  to  the  estimated  rentable 
value  of  each  part,  or  by  some  other  rule  equally  just  and  equitable. 
Their  action  is  not  open  to  revision  upon  the  allegations  in  this 
petition. 

Petition  dismissed. 


I 


EVANGELICAL  BAPTIST  BENEVOLENT  AND 
MISSIONARY  SOCIETY  v.  BOSTON. 

Supreme  Judicial  Court  of  Massachusetts.     1910. 

[Reported  204  Mass.  28.] 

KnowltoNj  C.  J.  Each  of  these  cases  is  an  appeal  by  the  peti- 
tioner to  the  Superior  Court  from  the  refusal  of  the  assessors  of 
the  city  of  Boston  to  abate  a  tax  assessed  to  the  petitioner.  The 
petitioner  was  incorporated  by  a  special  act  of  the  Legislature  (St. 
1857,  c.  154)  "  for  the  purpose  of  securing  the  constant  maintenance 
in  said  Boston  of  evangelical  preaching  for  the  young  and  the  desti- 
tute, with  free  seats ;  for  the  employment  of  colporteur  and  missionary 
laborers  in  Boston  and  elsewhere;  for  the  purpose  of  providing  suit- 
able central  apartments  to  other  and  kindred  benevolent  and  mis- 
sionary societies,  and  for  the  general  purpose  of  ministering  to  the 
spiritual  wants  of  the  needy  and  destitute."  By  §  2  of  the  act  it 
was  authorized  to  hold  real  and  personal  estate  to  the  amount  of 
$350,000,  and  this  property  was  exempted  from  taxation.  It  is  now 
holding  property,  the  fair  valuation  of  which  is  $911,000,^  and  upon 
its  application  to  have  this  larger  amount  exempted  from  taxation, 
it  was  decided  in  an  action  brought  by  this  petitioner  against  the 
city  of  Boston,  as  reported  in  192  Mass.  412,  that  its  right  to  an 
exemption  is  limited  to  the  amount  named  in  its  charter. 

In  the  present  petition  it  puts  its  claim  upon  different  grounds, 
and  contends  that  it  is  entitled  to  exemption  under  the  E.  L.  c.  12, 
§  5,  cl.  7,  which  is  as  follows : 

"  Seventh,  Houses  of  religious  worship  owned  by,  or  held  in  trust 
for  the  use  of,  any  religious  organization,  and  the  pews  and  fur- 
niture; but  the  exception  shall  not  extend  to  portions  of  such 
houses  appropriated  for  purposes  other  than  religious  worship  or 
instruction." 

The  petitioner's  constitution  recites  that  "  this  society  is  organized 

*  This  was  the  valuation  of  the  Tremont  Temple  building  made  by  the 
assessors  of  the  city  of  Boston. 


SECT.    IV.  J        EVANGELICAL    BAPTLST    &C.    SOC.    V.    BOSTON.  231 

for  the  purpose  of  receiving,  iiolding  and  managing  the  estate  known 
as  the  Treniont  Temple,  in  accordance  witii  tlie  provisions  of  the 
act  of  incorporation,'^  etc.  From  tlie  time  of  its  incorporation  it  has 
owned  and  managed  this  real  estate,  with  different  buildings  upon 
it  at  different  times,  as  new  structures  have  been  erected  to  replace 
those  injured  or  destroyed  by  ffre.  The  property  is  in  a  very  attrac- 
tive and  important  part  of  the  business  district  of  Boston.  The 
present  building,  like  those  that  preceded  it,  is  used  in  part  for 
business  and  in  part  for  religious  purposes.  Important  portions  of 
it  were  originally  constructed  and  have  always  been  used  exclu- 
sively for  the  transaction  of  business.  Other  parts  have  been  used 
regularly  both  for  religious  and  business  purposes.  These  parts 
include  five  halls  —  Converse  Hall,  Ijorimer  Hall,  Chapman  Hall, 
Gilbert  Hall  and  Social  Hall,  with  the  Blue  Room,  parlors,  cor- 
ridors and  other  appurtenances.  These  have  all  been  used  regularly 
by  Tremont  Temple  Baptist  Church  for  religious  purposes,  and 
have  also  been  rented  very  frequently,  and  as  often  as  opportunity 
offered  without  interfering  with  the  regular  uses  by  this  church, 
for  secular  gatherings,  and  for  different  religioac  gatherings  of  other 
organizations.  H  has  been  an  important  part  of  the  business  of 
the  petitioner  to  obtain  an  income  from  these  rentals,  although  the 
rental  value  of  the  use  by  the  Tremont  Temple  Baptist  Church  has 
been  largely  in  excess  of  the  rent  received  from  other  parties  for 
the  use  of  the  same  parts  of  the  building.  Converse  Hall  has  been 
used  as  the  main  auditorium  of  this  church. 

It  becomes  necessary  to  consider  the  meaning  of  the  E.  L.  c.  12, 
§  5,  cl.  7,  above  quoted.  The  purpose  of  the  provision  was  to  exempt 
from  taxation  ordinary  church  edifices,  owned  and  used  in  the  usual 
way  for  religious  worship.  Probably  such  an  unusual  condition  as 
appears  in  this  case  was  never  contemplated  by  the  framers  of  the 
statute.  The  special  provision  about  ownership  or  holding  in  trust 
was  first  enacted  by  the  St.  1865,  c.  206.  The  form  of  this  Statute, 
as  well  as  the  more  condensed  forms  of  the  later  revisions  of  it 
(see  Pub.  Sts.  c.  11,  §  5,  cl.  7,  R.  L.,  ubi  supra),  which  were  not 
intended  to  change  its  meaning,  implies  that  the  exemption  was 
intended  only  for  houses  owned  by,  or  held  in  trust  for,  religious 
organizations  that  occupy  and  use  them  for  worship.  We  are  of 
opinion  that  this  clause  of  the  present  revision  should  l;ie  construed 
as  if  the  words  ''occupying  and  using  them  as  such,"  were  inserted 
after  the  words,  "  religious  organization."  "We  do  not  think  that 
the  statute  applies  to  the  owner  of  a  house  of  religious  worship, 
even  if  that  owner  be  a  religious  organization,  that  has  never  oc- 
cupied or  used  the  house  for  religious  worshi]),  but  has  held  it  only 
to  be  let  to  others.  If  the  potitioni^r  be  called  a  religious  organiza- 
tion, as  in  a  broad  sense  it  undoubtedly  is,  we  do  not  think  it  is 
such  a  kind  of  a  religious  organization,  in  reference  to  its  ownership 
of  property,  as  the  statute  exempts  from  taxation  as  an  owner.  It 
is  not  the  owner  of  a  house  of  religious  worship  which  is  occupied 
and  used  by  it  as  such. 

The  Tremont  Temple  Baptist  Church  is  a  religious  organization 


232  EVANGELICAL    BAPTIST   &C.    SOC.    V.    BOSTOX.        [ciIAP.    II. 

within  the  meaning  of  this  statute.  Is  this  building  a  house  of 
worship  held  in  trust  for  this  church?  It  is  at  least  very  doubt- 
ful whctlier  the  building  is  a  house  of  worship  such  as  was  in- 
tended by  the  Legislature.  Ver}'  spacious  and  valuable  parts 
of  the  building  were  never  used  for  religious  worship  and  have 
no  relation  to  a  religious  use.  The  other  parts  are  used  in  part 
for  worship  and  in  part  for  many  other  purposes.  The  build- 
ing could  hardly  be  called  a  church  edifice.  In  many  if  not 
most  of  its  features,  it  has  the  characteristics  of  income-produc- 
ing property.  Those  parts  of  the  building  which  are  used  for  wor- 
ship are  not  held  in  trust  for  the  Tremont  Temple  Baptist  Church 
in  any  strict  or  technical  sense.  The  first  instrument  under  which 
the  church  held  is  called  "  a  license  or  lease,"  and  it  purports  to 
license  and  empower  the  church  to  use  the  property  on  certain  terms. 
In  other  parts  of  the  instrument  it  is  called  merely  a  "  lease."  The 
petitioner  reserves  the  right  to  sell  and  terminate  the  rights  of  the 
church  in  the  property  at  any  time.  By  a  modification  of  the  orig- 
inal indenture,  bearing  date  December  5,  1863,  it  was  provided, 
among  other  things,  that  if  the  church  should  settle  a  minister  with- 
out submitting  the  matter  of  his  selection  to  the  directors  of  the 
corporation,  or  otherwise  than  as  provided  in  this  new  agreement, 
it  should  be  a  violation  of  the  covenants  and  agreements  of  the  in- 
denture, and  should  absolutely  and  finally  determine  all  rights, 
privileges  and  estate  of  the  church  in  or  under  the  indenture,  and 
in  and  to  the  parts  of  the  building  therein  mentioned.  The  sentence 
ended  with  these  words :  "  and  the  lease  or  license  of  said  church  to 
occupy  the  same  or  any  part  thereof  shall  thereupon,  ipso  facto, 
cease  and  determine."  Another  indenture  was  made  on  March  13, 
1894,  which  modified  the  former  agreements  and  reaffirmed  them 
in  some  parts.  It  is  a  contract  between  the  parties  in  regard  to  the 
management,  use  and  occupation  of  different  parts  of  a  building 
to  be  erected,  which  is  the  present  building,  and  in  regard  to  the 
collection  and  disposition  of  rents  received.  Tlie  word  "  trust " 
does  not  anywhere  appear  in  it.  In  neither  of  the  indentures  is 
there  any  reference  to  any  trust  as  between  the  petitioner  and  the 
church.  While,  in  a  broad  sense,  it  may  be  said  that  some  relations 
of  trust  grow  out  of  the  undertakings  of  the  parties,  we  do  not  think 
that  this  building  appears  to  be  held  in  trust  for  the  church,  within 
the  meaning  of  the  statute. 

There  is  another  consideration  of  some  importance.  The  peti- 
tioner seeks  to  apply  this  general  statute  for  the  exemption  of  houses 
of  worship  to  its  ownership  under  a  special  charter  by  which  its 
right  to  hold  property  is  limited  to  the  amount  of  $350,000  in  value. 
Its  ownership  beyond  that  amount  is  without  authority  under  its 
charter.  Some  courts  have  held  that  the  title  of  a  corporation,  to 
property  beyond  the  amount  authorized  to  be  held,  is  absolutely 
void.  But  this  court,  after  considering  the  subject  at  length  in 
Hubbard  v.  Worcester  Art  Museum,  194  Mass.  280,  held  that  such 
ownership  is  invalid  as  against  the  State,  and  that  the  public  au- 
thorities alone  can  take  advantage  of  the  irregularity. 


SECT.    IV.]  EPISCOPAL    CHURCH,    &C.    V.    PRIOLEAU.  233 

The  question  at  once  arises  whether,  under  a  system  that  pro- 
vides for  the  taxation  of  all  property,  unless  an  exemption  is  created 
by  statute  and  is  plainly  established,  the  general  law  invoked  by  this 
petitioner  can  be  held  applicable  to  create  an  exemption  in  favor 
of  a  party  whose  holding  is  ultra  vires,  and  in  excess  of  the  authority 
given  by  its  charter.  This  exemption  is  claimed  against  an  assess- 
ment for  city,  county  and  State  taxes.  The  claim  is  made  against 
the  public  authorities  representing  the  State.  We  are  of  opinion 
that  a  party,  asking  an  exemption  of  his  property  under  this  general 
statute,  must  come  as  an  owner  who  has  a  title  which  the  Stjite  is 
bound  to  recognize.  A  corporation,  which  as  against  the  State  has 
no  right  to  hold  such  property,  is  not  in  a  position  to  claim  a  statu- 
tory exemption  whicli  is  intended  only  for  holding  fully  authorized 
by  law.  We  are  of  opinion  that  this  petitioner,  under  the  limita- 
tions of  its  charter,  has  no  standing,  as  an  owner  of  this  large  amount 
of  property,  to  ask  for  the  application  of  this  general  law. 

Judgments  affirmed. 


THE  PROTESTANT  EPISCOPAL  CHURCH  OF  THE 
PARISH  OF  ST.  PHILIP  v.  PRIOLEAU. 

Supreme  Court  of  South  Carolina.     1902. 

[Reported  63  iS.  C.  70.] 

JoxES,  J.  This  is  an  application  in  the  original  jurisdiction  of 
this  court  for  a  writ  of  mandamus  to  compel  the  county  auditor  of 
Charleston  county  to  correct  the  tax  duplicate  by  striking  therefrom 
the  assessment  of  the  lot  in  the  city  of  Charleston  known  as  St. 
Philip's  Parsonage,  which  it  is  claimed  by  petitioner  is  exempt  from 
taxation  under  article  10,  §  4,  of  the  constitution.  The  only  ques- 
tion in  the  case  arising  on  demurrer  to  the  petition  which  is  re- 
ported herewith,  is  whether  said  property  is  exempt  from  taxation. 
It  appears  from  the  petition  and  exhibits  that  the  lot  and  build- 
ings claimed  to  be  exempt  from  taxation  is  the  property  of  ''  The 
Protestant  Episcopal  Church  of  the  Parish  of  St.  Philip,  in  Charles- 
ton, in  the  State  of  South  Carolina,"  which  was  incorporated  under 
an  act  approved  December  20,  1791;  that  said  lot  and  buildings 
thereon  have  constituted  and  have  been  known  as  the  parsonage  of 
said  church  for  over  one  hundred  years,  and  have  never  been  taxed 
until  the  year  1898,  when  said  property  was  placed  on  the  tax  books 
and  taxes  levied  thereon,  then  and  ever  since;  that  said  lot  and 
buildings  at  the  time  of  their  assessment  for  taxation  in  1898  were 
not  actually  occupied  by  the  rector  or  parson  of  said  church  but  were 
rented  out,  the  rector  or  parson  hiring  another  residence  in  a  dif- 
ferent localitv  for  his  personal  convenience,  and  the  rent  derived 
from  said  parsonage  was  appropriated  to  the  salar}--  of  the  rector 
and  so  to  the  hiring  of  such  other  residence. 

We  are  of  the  opinion,  upon  the  facts  stated,  tliat  said  property  is 


234  MASS.    GENERAL   HOSPITAL   r.   BELMONT.  j^CHAP.   II. 

exempt  from  taxation.  Article  10,  §  4,  of  the  constitution,  pro- 
vides :  "  There  shall  be  exempt  from  taxation  .  .  .  all  .  .  .  par- 
sonages: .  .  .  provided,  that  as  to  real  estate  this  exemption  shall 
not  extend  beyond  the  buildings  and  premises  actually  occupied 
by  such  .  .  .  parsonages,  .  .  .  although  connected  with  charitable 
objects."  The  premises  in  question  constituting  and  known  as  St. 
Philip's  Church  parsonage,  and  being  set  apart  for  the  actual  use 
and  occupancy  of  its  parson,  does  not  lose  its  character  as  a  "par- 
sonage "  merely  because  the  parson  for  his  personal  convenience 
should  permit  another  to  occupy  said  premises  and  use  the  rent 
thereof  in  procuring  another  more  convenient  residence.  It  does 
not  appear  that  said  premises  used  as  a  parsonage  for  over  one 
hundred  years  has  ceased  to  be  such. 

It  is  therefore  the  judgment  of  this  court  that  the  writ  of  man- 
damus issue  as  prayed  for  in  this  petition. 


MASSACHUSETTS   GENERAL  HOSPITAL  v.  BELMONT. 
Supreme  Judicial  Court  of  Massachusetts.     1919. 

[Reported  233  Mass.  190.] 

EuGG,  C,  J.  These  are  two  petitions  under  Part  I,  §  77  of  the 
general  tax  act,  St.  1909,  c.  490,  appealing  from  the  refusal  of  the 
assessors  of  the  town  of  Belmont  to  abate  taxes  alleged  to  have  been 
assessed  illegally  for  the  years  1915  and  1916  respectively  upon  real 
estate  of  the  petitioner  devoted  to  the  care  of  the  insane  under  a 
department  known  as  the  McLean  Asylum  and  located  in  that  town. 
The  taxes  were  assessed  pursuant  to  St.  1914,  c.  518,  §  1,  which 
amended  the  exemption  from  taxation  of  the  personal  estate  of  char- 
itable institutions  and  their  real  estate  actually  occupied  for  their 
corporate  purposes  set  forth  in  the  general  tax  act,  §  5,  cl.  3,  by 
adding  a  proviso  in  these  words :  "  nor  shall  the  personal  property 
or  real  estate  owned  by  such  institutions  or  corporations  and  oc- 
cupied by  them  or  any  department  thereof  wholly  or  partly  as  and 
for  an  insane  asylum,  insane  hospital,  institution  for  the  insane  or 
for  the  treatment  of  mental  or  nervous  diseases,  be  exempt  from 
taxation  unless  at  least  one  fourth  of  all  property  so  occupied  wholly 
or  partly,  on  the  basis  of  valuation  thereof,  and  one  fourth  of  the 
income  of  all  trust  and  other  funds  and  property  held  for  the  benefit 
of  such  asylum,  hospital  or  institution  and  not  actually  occupied 
by  it  for  such  purposes,  be  used  and  expended  entirely  for  the 
treatment,  board,  lodging  or  other  direct  benefit  of  indigent  insane 
persons,  or  indigent  persons  in  need  of  treatment  for  mental  dis- 
eases, as  resident  patients,  without  any  charge  therefor  to  such  per- 
sons either  directly  or  indirectly." 

The  meaning  and  the  constitutionality  of  St.  1914,  c.  518,  §  1, 
are  questions  which  lie  at  the  threshold  of  the  case. 

1.  The  contentions  made  by  the  petitioner  as  to  the  construction 
of  the  statute  summarily  stated  are  that  the  words  "without  any 


SECT.   IV.]  MASS.    (UiNKlLVL   liOSl'IT^VL    V.    IlKLMOXT.  235 

charge  therefor"  in  the  last  clause  of  the  amendment  mean  in  sub- 
stance, without  any  charge  for  the  use  of  the  property  occupied 
by  the  institution  or  department  in  (|uestion  for  the  purposes  stated 
or  for  benefits  received  tiirougii  the  expenditure  of  the  income  of 
trust  or  other  funds  and  property  held  for  the  use  of  the  institution 
or  department  and  not  actually  occupied  for  such  purposes,  and 
that  tiie  word  "therefor"  refers  to  the  use  of  property  and  income 
and  not  to  "  treatment,  board,  lodging  or  other  direct  benefit."  We 
are  of  opinion  that  these  contentions  cannot  be  adopted.  The  word 
"  therefor,"  according  to  the  approved  usages  of  languages  ordi- 
narily refers  to  the  last  and  not  to  a  more  remote  antecedent  noun 
or  phrase.  It  is  the  natural  import  of  the  proviso  as  a  whole  that 
the  exoneration  from  charge  relates  to  service  rendered  or  furnished 
and  not  alone  to  use  of  property  or  income.  The  legislative  history 
of  the  statute  a])pears  to  disclose  a  purpose  to  make  a  material 
change  respecting  the  exemption  from  taxation  of  property  of  such 
charitable  institutions.  Apparently  in  its  practical  working  little 
if  any  change  would  result  from  the  construction  put  forward  in 
behalf  of  the  petitioner.  It  is  diflicult  and  perhaps  not  desirable 
to  attempt  to  lay  down  a  precise  and  technical  defmition  of  "  in- 
digent persons"  such  as  exists  respecting  the  Avord  "paupers."  See 
Opinion  of  the  Justices,  11  Pick.  537.  But  in  a  broad  sense  in 
this  connection  "  indigent  persons "  include  those  insane  persons 
who  by  reason  of  poverty  are  unable,  having  due  regard  to  other 
imperative  obligations  resting  upon  them,  to  contribute  any  sub- 
stantial amount  to  their  support  in  the  asylum.  Weeks  i'.  Mansfield, 
84  Conn.  544.    In  re  Ilyhart,  119  N.  C.  359. 

The  other  parts  of  the  statute  present  no  insuperable  difficulty  in 
construction.  One  fourth  of  the  property  occupied  wholly  or  partly 
for  the  insane  asylum  or  other  designated  use,  on  the  l)asis  of  valua- 
tion, and  one  fourth  of  the  income  from  property  held  for  its  benefit 
must  be  devoted  to  the  direct  benefit  of  indigent  insane  without 
cliarge.  This  does  not  of  necessity  require  a  physical  line  of  demar- 
cation between  the  portions  of  the  real  estate  devoted  to  pay  patients 
and  those  given  over  to  the  use  of  free  patients.  Plainly  it  does 
not  mean  a  fractional  use  of  the  property  based  on  numbers  of  pa- 
tients. It  signifies  that,  on  a  fair  basis  of  computation,  having 
reference  both  to  numbers  of  patients  treated  so  far  as  concerns 
enjoyment  of  property  adapted  for  and  applied  to  a  use  in  common 
by  pay  and  free  patients  and  to  definite  property  so  far  as  there 
is  a  strict  separation  between  pay  and  free  patients,  one  fourth  in 
value  shall  be  employed  for  the  benefit  of  the  latter.  The  same 
method,  so  far  as  practicable,  may  be  employed  in  determining  the 
expenditure  of  income.  The  statute  is  intended  to  be  given  a  ra- 
tional construction.  Its  operation  must  be  adapted  to  the  practical 
solution  of  a  specified  problem.  Within  these  somewhat  compre- 
hensive lines,  the  calculation  of  the  required  proportions  of  prop- 
erties doubtless  can  be  accomplished  witliout  undue  friction.  The 
statute  does  not  appear  to  be  an  unworkable  piece  of  legislation. 
Hemenway  v.  Milton,  217  Mass.  230. 


236  MASS.   GENERAL  HOSPITA.L   V.   BELMONT.  [CHAP.   IT. 

2.  We  are  not  able  to  perceive  that  any  constitutional  right  of 
the  petitioner  is  infringed  by  the  statute. 

The  petitioner  does  not  claim,  that  it  has  any  special  exemption 
from  taxation  as  a  part  of  its  charter  rights.  See  St.  1810,  c.  94. 
"Whatever  exemption  it  heretofore  has  enjoyed  rested  upon  general 
law  declaratory  of  a  scheme  of  public  policy.  That  may  be  changed 
by  the  General  Court  provided  no  other  constitutional  guaranty 
is  offended.  Christ's  Church  v.  Philadelphia,  24  How.  30.  Grand 
Lodge  F.  &  A.  Masons  v.  Xew  Orleans,  166  U.  S.  143.  Stanislaus 
V.  San  Joaquin  &  King's  Eiver  Canal  &  Irrigation  Co.  193  U.  S. 
201.  Choate  v.  Trapp,  224  U.  S.  665,  674.  The  question  somewhat 
argued  respecting  the  ethics  of  inviting  contributions  from  chari- 
tably disposed  persons  on  the  footing  that  the  beneficiary  of  their 
gifts  is  to  be  exempt  from  taxation,  and  then  revoking  that  exemp- 
tion after  large  gifts  have  been  made,  is  wholly  legislative  and  not 
judicial  in  its  nature.  It  presents  no  question  of  constitutional  law. 
The  law  of  taxation  may  be  changed.  In  the  absence  of  some 
binding  contract,  no  one  has  a  legal  right  to  the  continuance  of 
such  laws.  Hanscom  r.  Maiden  &  Melrose  Gas  Light  Co.  220  Mass. 
1,  8.    Calien  v.  Brewster,  203  U.  S.  543. 

3.  The  statute  here  assailed  does  not  deny  to  the  petitioner  the 
equal  protection  of  the  laws  guaranteed  both  by  the  State  and  Fed- 
eral Constitutions.  The  Fourteenth  Amendment  to  the  Federal 
Constitution  secures  the  petitioner  against  being  singled  out  either 
by  name  or  otherwise,  directly  or  indirectly,  and  subjected  to  heavier 
burdens  than  are  imposed  upon  other  like  corporations.  Eeasonable 
classification  so  far  as  concerns  taxation  or  exemption  from  taxation 
may  be  made  by  the  Legislature.  The  constitutional  principles 
respecting  the  basis  of  such  classification  have  been  declared  in  nu- 
merous cases.  It  was  said  by  Chief  Justice  Fuller  in  Giozza  v. 
Tieman,  148  U.  S.  657,  662:  "Nor,  in  respect  of  taxation  was  the 
amendment  intended  to  compel  the  State  to  adopt  an  iron  rule  of 
equality;  to  prevent  the  classification  of  property  for  taxation  at 
different  rates;  or  to  prohibit  legislation  in  that  regard,  special 
either  in  the  extent  to  which  it  operates  or  the  objects  sought  to  be 
obtained  by  it.  It  is  enough  that  there  is  no  discrimination  in  favor 
of  one  as  against  another  of  the  same  class.  .  .  .  And  due  process 
of  law  within  the  meaning  of  the  amendment  is  secured  if  the  laws 
operate  on  all  alike,  and  do  not  sul)ject  the  individual  to  an  arbi- 
trarj'  exercise  of  the  powers  of  government."  In  Southern  Railway 
V.  Greene,  216  U.  S.  400,  at  page  417,  occur  these  words:  "AYhile 
reasonable  classification  is  permitted,  without  doing  violence  to  the 
equal  protection  of  the  laws,  such  classification  must  be  based  upon 
some  real  and  substantial  distinction,  bearing  a  reasonable  and 
just  relation  to  the  things  in  respect  to  which  such  classification 
is  imposed ;  and  classification  cannot  be  arbitrarily  made  without  any 
substantial  basis.  Arbitrary  selection,  it  has  been  said,  cannot  be 
justified  by  calling  it  classification."  In  Citizen's  Telephone  Co.  of 
Grand  Rajpids  v.  Fuller,  229  U.  S.  322,  at  page  329,  is  found  the 
statement ;  "  The  power  of  exemption  would  seem  to  imply  the  power 


SECT.   IV.]  MASS.   GEXEIl^VL   HOSPITAL   V.    BELMOXT.  237 

of  discrimination,  and  in  taxation,  as  in  other  matters  of  legislation, 
classification  is  within  tlie  competency  of  the  Ijcgislature ;"  and  at 
page  331 :  "  Granting  the  power  of  classification,  we  must  grant 
Government  the  right  to  select  the  differences  upon  wliich  the  classi- 
fication shall  be  based,  and  they  need  not  he  great  or  conspicuous. 
Keeney  v.  New  York,  222  U.  S.  525,  536.  The  State  is  not  bound 
by  any  rigid  equality.  This  is  the  rule;  —  its  limitation  is  that  it 
must  not  be  exercised  in  'clear  and  hostile  discriminations  between 
particular  persons  and  classes.'  See  223  U.  S.  59,  62,  63.  Thus 
defined  and  thus  limited,  it  is  a  vital  principle,  giving  to  the  Gov- 
ernment freedom  to  meet  its  exigencies,  not  binding  its  action  by 
rigid  formulas  but  apportioning  its  burdens  and  permitting  it  to 
make  those  '  discriminations  which  the  best  interests  of  society 
require.' " 

It  is  to  be  borne  in  mind  constantly  that  the  present  statute  re- 
lates only  to  the  conditions  under  which  exemption  from  the  or- 
dinary burdens  of  taxation  is  to  be  granted  to  certain  kinds  of 
charitable  corporations.  It  is  not  a  classification  for  purposes  of 
taxation  but  of  exemption  from  taxation,  ^ye  consider  only  the 
question  presented  and  do  not  undertake  to  decide  whether  the 
statute  woidd  be  open  to  successful  attack  as  a  classification  for 
taxation. 

The  classification  declared  by  tlie  present  statute  is  the  selection 
of  insane  asylums,  insane  hospitals,  and  institutions  "  for  the  insane 
or  for  the  treatment  of  mental  or  nervous  diseases,"  the  separation 
of  these  from  all  other  charities  and  a  declaration  of  different  con- 
ditions respecting  them  as  compared  with  other  charities.  Such  a 
classification  on  its  face  is  not  irrational.  The  Ijegislature  has  for 
many  years  made  various  classifications  touching  the  exemption 
from  taxation  of  charitable  corporations.  For  example,  all  the  real 
and  personal  estate  of  incorporated  agricultural  societies  is  exempted 
from  taxation,  while  only  tlie  portions  of  the  real  estate  and  build- 
ings of  incorporated  horticultural  societies  used  for  their  offices,  libra- 
ries and  exhibitions  are  tax  free.  Only  those  portions  of  houses  of 
religious  worship  appropriated  to  such  worship  and  instruction  are 
exempted  from  taxation.  The  tax  exempt  property  of  incorporated 
Grand  Army  posts  or  veterans'  associations  is  limited  to  $20,000, 
but  there  is  no  such  limitation  upon  the  value  of  real  and  tangible 
personal  estate  held  for  units  of  the  volunteer  militia.  The  Bunker 
Hill  Momument,  although  OM'ned  by  a  private  association  (St.  1823, 
c.  1,  and  St.  1824,  c.  122),  has  been  exempted  bv  name  from  taxa- 
tion. Parsonages  owned  by  religious  societies  used  exclusively  by 
their  ministers  as  dwelling  houses  are  not  exempt  from  taxation, 
although  dwelling  houses  of  literar\%  educational,  charitable  and 
scientific  institutions  and  occupied  permissively  by  tlieir  officers 
are  so  exempt.  Third  Concjreirational  Society  of  Springfield  v. 
Springfield,  147  Mass.  396.  ""See  general  tax  act.  Part  I,  '§  5.  els. 
4r-7.  There  are  numerous  special  statutes  applying  to  named  chari- 
ties, rules  as  to  taxation  and  to  tax  exemptions  differing  somewhat 
in  their  substance  and  details  from  each  other  and  from  the  general 


23S  MASS.    GENERAL   HOSPITAL   V.    BELMONT.  [CUAP.    IL 

law.  Yet  it  never  has  been  suggested  that  these  are  unconstitutional 
discriminations  or  preferences.  See  for  example  Nortlianipton  v. 
County  Commissioners,  145  Mass.  108;  Old  Soutli  Association  in 
Boston  r.  Boston,  212  Mass.  299;  ]\Iount  Auburn  Cemetery  7'.  Mayor 
&  Aldermen  of  Cambridge,  150  Mass.  12;  Harvard  College  v.  Alder- 
men of  Boston,  104  :Mass.  470. 

These  dilferent  provisions,  which  are  in  the  nature  of  classifica- 
tions of  chariiable  corporations  for  purposes  of  exemption  from 
taxation,  have  existed  for  many  years  and  no  contention  lias  been 
made  that  they  transcended  the  constitutional  power  of  the  Legis- 
lature. These  statutes  have  the  support  of  a  long  and  unquestioned 
usage.  Of  course  this  is  not  decisive.  But  clear  reason  is  required 
to  upset  as  contrary  to  the  Fourteenth  Amendment  a  settled  system 
of  tax  exemptions. 

One  ground  upon  which  exemptions  from  taxation  of  charitable 
institutions  like  the  petitioner  can  be  justified  in  a  constitutional 
sense  is  that  they  minister  to  human  and  social  needs  which  the 
State  itself  might  and  does  to  a  greater  or  less  extent  undertake  to 
satisfy.  The  ultimate  obligation  of  the  State  thus  is  discharged 
by  the  private  charity.  To  that  extent  the  State  is  relieved  of  its 
burden.  Opinion  of  the  Justices,  195  Mass.  607,  609.  An  exemp- 
tion from  taxation  is  in  the  nature  of  an  appropriation  of  public 
funds,  because,  to  the  extent  of  the  exemption,  it  becomes  necessary 
to  increase  the  rate  of  taxation  upon  other  properties  in  order  to 
raise  money  for  the  support  of  government.  Appropriations  of 
public  funds  for  charitable  uses  need  not  be  uniform.  Exemptions 
need  not  be  on  the  same  footing  for  all,  although  they  cannot  be 
framed  upon  an  arbitrary  or  discriminatory  basis.  It  is  not  nec- 
essary to  cite  the  many  special  statutes  granting  appropriations  to 
certain  educational  institutions  and  not  to  others,  the  constitution- 
ality of  which,  so  far  as  we  are  aware,  has  not  been  assailed. 

It  must  fairly  be  assumed  on  this  record,  it  seems  to  us,  that  the 
present  classification  includes  only  the  petitioner  and  one  other 
institution,  the  Xew  England  Sanitarium,  located  in  the  town  of 
Stoneham.  The  simple  circumstance  that  only  two  institutions  may 
be  included  within  a  tax  exemption  classification  is  not  conclusive 
against  its  validity.  It  is  a  factor  not  to  be  lightly  disregarded.  The 
fundamental  question,  however,  is  AA'hether  the  classification  rests 
upon  a  rational  foundation  or  is  arbitrary,  oppressive,  whimsical 
or  visionary.  The  fact  that  laws  are  found  to  be  so  fashioned  as 
to  be  applicable  in  their  practical  operation  to  a  single  person  often- 
times points  strongly  to  a  designed  inequality  and  unfair  discrimina- 
tion. Austin  V.  Murray,  16  Pick.  121.  Cotting  v.  Kansas  City 
Stock  Yards  Co.  183  U."  S.  79,  103.  :McFarland  v.  American  Sugar 
Befining  Co.  241  IT.  S.  79,  86.  But  the  present  statute  does  not 
appear  to  us  to  fall  within  the  class  illustrated  by  the  cases  just 
cited.  A  tax  statute,  although  disguised  as  a  classification  but  in 
truth  designed  as  revealed  by  its  practical  operation  to  select  for 
hostile  discrimination  a  single  person  or  corporation  from  other  per- 
sons or  corporations  of  like  legal  standing  or  nature,  cannot  stand 


SECT.   IV.]  MASS.  GENERAL   HOSPITAL    V.   BELMONT.  2S9 

under  the  requirement  for  equal  laws.  But  a  tax  exemption  statute 
which  rests  upon  a  rational  classification  is  not  to  be  stricken  down 
merely  because  affecting  a  few  or  even  one  in  its  practical  operation. 
Such  a  classilication  as  is  made  by  the  present  statute  may  be 
thought  to  bear  a  reasonable  and  just  relation  to  a  substantial  dis- 
tinction among  charities.  Insane  asylums  organized  and  operated 
by  private  corporations  may  be  thought  to  be  diU'erent  in  respect 
of  tax  exemption  from  other  charities. 

The  history  of  tiie  statute  as  narrated  in  the  record  bears  some 
indication  of  a  discriminatory  basis.  It  affords  ground  for  the  argu- 
ment put  forward  by  tiie  respondent  that  it  was  designed  to  relieve 
what  it  terms  an  injustice  arising  from  tiie  exemption  from  taxation 
of  so  much  property  within  its  territorial  limits.  Manifestly  no 
such  relief  could  have  been  thought  to  be  afforded  provided  the 
statute  is  workable  and  can  and  will  be  complied  witli  by  the  peti- 
tioner. We  think  it  can  be,  as  already  pointed  out.  Giving  due 
weight  to  all  the  arguments  urged,  however,  they  do  not  appear  to 
us  to  be  of  countervailing  weight.  This  statute  does  not  establish  a 
clearly  hostile  discrimination  against  a  particular  corporation  or 
person  or  class  outside  the  limits  of  general  usage,  but  on  the  con- 
trary is  within  a  custom  respecting  classification  toucbing  this  gen- 
eral subject  which  long  has  obtained  in  this  Commonwealth.  "The 
Fourteenth  Amendment  was  not  intended  to  compel  the  State  to 
adopt  an  iron  rule  of  equal  taxation."  Bell's  dap  Railroad  v.  Penn- 
sylvania, 134  U.  S.  23"<J,  237.  "  Hardsliip,  impolicy  or  injustice  of 
State  laws  is  not  necessarily  an  objection  to  their  constitutional 
validity."  Magoun  v.  Illinois  Trust  &  Savings  Bank,  170  U.  S. 
283,  293,  295.  County  of  Mobile  v.  Kimball,  102  U.  S.  691.  The 
power  of  the  General  Court  with  reference  to  the  extent  and  char- 
acter of  exemptions  of  charities  from  taxation  is  very  broad,  al- 
though not  unlimited.  Without  undertaking  further  to  define  the 
restrictions  upon  legislative  discretion  in  this  particular,  it  is  sufH- 
ciont  to  say  that  we  think  it  cannot  he  pronounced  beyond  the  power 
of  the  Legislature  to  establish  institutions  designed  for  the  treat- 
ment and  care  of  those  afflicted  with  mental  disease  and  disorder 
as  a  class  by  themselves  among  charities  for  purposes  of  tax  exemp- 
tion under  all  the  conditions  disclosed  by  this  record,  even  though 
only  two  institutions  appear  to  be  affected.  ... 

So  ordered. 


240  STATE  ex  rel.  moox  v.  ^'yoaakd.  [chap,  it, 

SECTIOX    V. 
IXCO:\IE    TAX. 
STATE  ex  rel.  MOOX  v.  NYGAARD. 

Supreme  Court  of  Wisconsin.     1920. 

[Reported  170  Wis.  415.] 

Appeal  from  a  judgment  of  the  circuit  court  for  Eau  Claire 
county:  James  Wickham,  Circuit  Judge.     Affirmed. 

The  plaintiffs  in  this  action  were  stockholders  of  the  Sallie  F. 
Moon  Company,  a  Wisconsin  corporation.  That  company  was  or- 
ganized in  1906,  and  its  capital  stock  of  $400,000  was  issued  to  the 
mother  of  relators  in  consideration  of  the  transfer  to  it  of  her  prop- 
erty, and  among  such  were  1,893  out  of  the  2,423  shares  of  the 
capital  stock  of  the  Northwestern  Lumber  Company,  also  a  Wiscon- 
sin corporation.  Although  the  charter  of  the  Sallie  F.  Moon  Com- 
pany authorized  the  dealing  in  real  and  personal  property,  loaning 
money,  general  merchandising,  manufacturing,  lumber  and  logging 
business,  it  appears  that  it  functioned  merely  as  a  holding  company 
in  collecting  returns  from  and  conserving  its  assets  and  distributing 
them  among  its  stockholders. 

Januar}'  1,  1911,  the  Northwestern  Lumber  Company  had  a  sur- 
plus of  $5,268,851,19.  This  was  reduced  from  year  to  year  there- 
after by  dividends  declared  from  that  as  well  as  from  its  earnings, 
so  that  on  Januarv  1,  1915,  the  surplus  was  $4,548,688.93,  and  on 
January  1,  1916,  $4,292,198.28. 

The  Northwestern  Lumber  Company  made  no  profit  in  carrying 
on  its  business  during  the  years  1915  and  1916  respectively,  as 
appeared  from  its  returns  to  the  tax  commission. 

On  the  1st  of  December,  1916  and  1917,  resolutions  were  respec- 
tively adopted  declaring  a  dividend  of  fifty  per  cent  on  the  outstand- 
ing capital  stock  of  the  Northwestern  Lumber  Company,  payable 
out  of  the  surplus  fund  that  existed  on  Januar}-  1,  1911.  Pursuant 
thereto  payment  was  made  in  1916  to  the  Sallie  F.  Moon  Company 
of  $47,325  and  in  1917  of  $94,650. 

During  the  year  1917  the  Sallie  F.  Moon  Company  paid  to  its 
stockholders  dividends  aggregating  $38,035,  of  which  $5,700  was 
paid  to  each  of  the  three  plaintiffs.  Such  dividends  were  substantially 
and  in  effect  paid  out  of  the  moneys  received  from  the  Northwestern 
Lumber  Company  as  above  stated. 

Due  returns  were  made  according  to  law  l)y  each  of  the  said 
corporations  and  the  relators  as  individuals  of  their  respective  in- 
comes during  the  years  in  question. 

Each  of  the  relators  claimed  a  deduction  from  his  income  subject 
to  taxation  to  an  extent  of  $5,322  from  the  $5,700  received  from 
the  Sallie  F.  Moon  Company.  Such  several  claims  for  deductions 
were  allowed  by  the  board  of  review  of  Eau  Claire  county  on  due 
hearing,  thereby  overruling  the  assessment  made  against  such  re- 
lators by  the  supervisor  of  assessors.  The  supervisor  thereupon 
appealed  to  the  tax  commission  of  Wisconsin,  and  on  the  hearing 


SECT.   v.]      STATE  CX    Vcl.    MOON  V.    NYGAARD.  241 

before  said  body  the  action  of  the  board  of  review  was  reversed  and 
the  assessment  made  by  the  supervisor  of  assessors  confirmed.  There- 
upon the  relators  obtained  a  writ  of  certiorari  from  the  circuit  court 
for  Eau  Claire  county  to  review  such  determination  of  tiie  tax  com- 
mission. Upon  hearing  in  the  court  below  it  was  adjudged  that 
the  assessment  as  taxable  income  made  against  each  of  the  relators 
for  the  year  191 T,  so  far  as  it  was  based  on  the  dividend  of  $5,700 
received  from  the  Sallie  F.  Moon  Company,  must  be  vacated  and 
set  aside. 

From  the  judgment  so  entered  an  appeal  was  taken  to  this  court 
by  the  county  clerk  of  Eau  Claire  county  and  by  him  as  clerk  of 
the  county  income  tax  board  of  review  for  said  county. 

EscHWEiLER,  J.  The  appellant  contends  that  the  money  paid 
to  the  plaintiffs  as  stockholders  of  the  Sallie  F.  Moon  Company  and 
designated  as  dividends  is  taxable  income  of  the  relators  although 
the  source  of  such  dividends  is  a  surplus  accumulated  prior  to  1911 
by  the  Xorthwestern  Lumber  Company  and  paid  out  by  it  to  the 
Sallie  F.  Moon  Company  in  1917  as  a  result  of  severally  declared 
dividends  by  the  Xorthwestern  Lumber  Company  in  1916. 

The  income  tax  law  provides  for  the  levying  of  a  tax  upon  annual 
incomes.  Sub.  2,  sec.  1087m  —  2,  Stats.,  in  defining  the  term  "  in- 
come," so  far  as  material  here  now  reads  as  follows : 

"(b)  All  dividends  derived  from  stocks  and  all  interest  derived 
from  money  loaned  or  invested  in  notes,  mortgages,  bonds  or  other 
evidence  of  debt  of  any  kind  whatsoever,  provided,  that  the  term 
'dividends'  as  used  in  tit  is  seciion  sliall  he  held  to  mean  anij  dis- 
tribution made  by  a  corporation,  joint-stocl-  company  or  association, 
out  of  its  earnings  or  profits  accrued  since  January  1,  1911,  and 
paid  to  its  shareholders  whether  in  cash  or  in  stock  of  the  corporation, 
joint  company  or  association." 

The  italicised  portion  of  said  sub.  2  (b)  was  added  to  the  statute 
as  it  then  stood  by  ch,  247,  Laws  1917,  approved  May  21st. 

The  word  "  dividend "  as  used  in  the  subsection  prior  to  the 
amendment  had  been  construed  in  Van  Dyke  r.  Milwaukee,  159 
Wis.  460,  159  X.  W.  509,  to  mean  that  '"ordinary  dividends  declared 
by  a  going  corporation,  including  mining  corporations,  will  be  con- 
clusively presumed  as  against  stockholders  to  be  from  earnings  or 
profits  for  purposes  of  income  taxation."     Page  464. 

In  State  ex  rel.  Bundy  v.  Xygaard,  163  Wis.  307,  158  N.  W.  87, 
the  word  "  income  "  as  used  in  the  statute  before  amendment  was 
defined  to  be  "  profit  or  gain  derived  from  capital  or  labor,  or  from 
both  combined.   ...   It  must  be  gain  or  profit.*' 

Subscfiuentlv  the  cases  of  State  ex  rel.  Pflster  v.  Widule,  166  Wis. 
48,  163  X.  W.641  (decided  in  June,  1917),  and  State  ex  rel.  Sallie 
F.  Moon  Co.  (a  Wisconsin  corporation)  v.  Wis.  Tax  Comm.  166  Wis. 
287,  288,  163  X.  W.  639,  165  X.  W.  470  (decided  in  December, 
1917,  but  argued  in  May  of  that  year),  repeated  what  was  said  in 
the  Van  Dyke  Case,  supra,  as  to  the  definition  given  t'^  the  word 
'•'  dividend." 


242  OSGOOD  r.   tax  commissioner.  [chap.   ii. 

We  construe  the  legislature  definition  now  applicable  to  the  term 
"dividend"  as  it  stands  in  the  amended  sec.  1087//1  —  2  as  intended 
to  now  permit  the  opening  of  the  door  of  inquiry  as  to  the  source 
from  which  came  the  money  paid  by  a  corporation  to  its  stockholders, 
although  designated  by  it  as  dividends,  the  door  which  was  in  effect 
declared  in  the  prior  cases  completely  closed.  The  result  now  is 
that  a  stockholder  in  any  corporation  to  whom,  as  stockholder,  there 
has  been  paid  a  sum  of  money  under  the  designation  of  dividends 
has  the  right  to  show  that  such  payment  or  dividend  was  made  out 
of  capital  or  surplus  and  therefore  not  taxable,  instead  of  out  of 
earnings  or  profits  accrued  since  January  1,  1911,  which  would  be 
taxable.  That  the  fund  in  question  passes  through  the  treasury  of 
the  Sallie  F.  Moon  Company  after  leaving  that  of  the  Xorthwestern 
Lumber  Company  and  before  reaching  the  hands  of  the  relators  does 
not  change  the  nature  of  the  transaction.  At  no  time  on  its  passage 
from  the  first  company  to  the  relators  does  it  meet  the  present  defini- 
tion of  the  dividend  which  is  to  be  considered  as  part  of  the  taxable 
income  of  an  individual. 

It  follows  that  when,  as  here,  the  fund  in  question  does  not  meet 
the  definition  of  taxable  income,  it  is  unnecessary  to  consider  the 
language  of  the  same  law  providing  for  deductions  and  exemptions, 
for  they  are  properly  considered  only  in  reference  to  that  which 
would  otherwise  be  taxable  income. 

Giving  the  words  "  earnings  "  and  "  profits "  their  plain,  every- 
day meaning,  the  payments  in  question  here  are  not  profits  or  earn- 
ings accrued  since  January  1,  1911,  to  the  Sallie  F.  Moon  Company 
and  therefore  do  not  meet  the  present  statutory  definition  of  taxable 
income.    The  trial  court  was  therefore  right  in  his  conclusion. 

By  the  Court. — Judgment  affirmed. 

"WiNSLOW,  C.  J.  and  Siebecker,  J.,  dissent. 


OSGOOD  V.  TAX  COMMISSIONER. 
Supreme  Judicial  Coukt  of  Massachusetts.     1920. 

[Reported  235  Mass.  88.] 

EUGG,  C.  J.  This  is  a  petition  under  St.  191(5,  c.  269,  §  20.  It 
involves  the  validity  of  a  tax  assessed  on  an  alleged  gain  in  the 
purchases  or  sales  of  intangible  personal  property  under  §  5  (c) 
of  said  act.  The  salient  facts  are  that  the  petitioner  on  Janu- 
ary 1,  1916,  was  the  owner  of  one  thousand  three  hundred  shares 
of  the  preferred  and  one  thousand  shares  of  the  common  stock  of 
the  Draper  Company,  a  Maine  corporation  conducting  an  exten- 
si'e  manufacturinii:  business  at  Hopedale  in  this  Commonwealth. 
That  corporation  had  outstanding  preferred  stock  of  the  par  value 
of  $2,000,000  and  common  stock  of  the  par  value  of  $6,000,000. 
The  directors  of  that  corporation,  in  June,  1916,  caused  a  new 
corporation  to  be   organized   under  the  laws  of  Maine,  called  the 


SECT.      v.]  OSGOOD    V.    TAX    COMMISSIONER.  243 

Draj)er  Corporation,  wliicli  voted  to  issue  its  stock,  all  being  com- 
mon, of  a  par  value  of  $17,500,000,  in  exchange  for  the  stock  of 
the  Draper  Company,  two  and  one  half  of  its  shares  for  each  one 
share  of  the  common  stock  of  the  old  company,  and  one  and  one 
quarter  of  its  shares  for  each  one  share  of  the  preferred  stock  of 
the  old  company.  The  petitioner  accepted  the  offer  to  ex'change  on 
this  basis  and  received  for  the  surrender  of  her  shares  of  stock  in 
the  old  company  four  thousand  one  hundred  twenty-five  shares  of 
stock  in  the  l)raj)er  Corporation.  The  new  corporation  became  the 
owner  of  substantially  all  of  the  stock  of  the  old  company  and 
caused  to  be  transferred  to  itself  all  the  assets  of  the  old  companv, 
and  carried  on  tiie  business  of  the  latter  through  the  same  officers 
without  interruption  and  without  outward  indication  of  change. 
The  Tax  Commissioner  assessed  a  tax  upon  the  gain  which  he  as- 
certained by  subtracting  the  value  of  the  shares  in  the  old  com- 
pany on  January  1,  1916,  (§  7  of  said  act,)  from  the  value  of  the 
shares  of  the  new  company  at  the  time  of  tlie  exchange  in  July  of 
that  year.  Xo  question  now  is  raised  as  to  the  method  of  ascertain- 
ing the  tax.  The  amounts  have  been  agreed  upon.  The  question  is 
whether  that  gain  under  the  circumstances  disclosed  is  subject  to 
taxation  under  St.  liilG,  c.  2G9,  §  5  (c).  Its  governing  words  are, 
*'  The  excess  of  the  gains  over  the  losses  received  by  the  taxpayer 
from  purchases  or  sales  of  intangible  personal  property,  whether  or 
not  the  said  taxpayer  is  engaged  in  the  business  of  dealing  in  such 
property,  shall  be  taxed  at  the  rate  of  three  per  cent  per  annum." 

Tax  statutes  must  be  construed  strictly.  The  power  to  tax 
must  be  conferred  by  plain  words  or  it  does  not  exist.  It  is  not 
to  be  extended  by  implication  or  by  invoking  the  spirit  of  the  law. 
Sewall  V.  Jones,  9  Pick.  412.  Hill  v.  Treasurer  &  Receiver  General, 
229  Mass.  474,  475. 

The  point  to  be  decided  is  whether  the  transaction  in  which  the 
petitioner  engaged  rightly  can  be  said  to  be  comprehended  within 
the  statutory  words  "  purchases  or  sales." 

Various  definitions  of  "sale"  are  to  be  found  in  decisions  and 
among  text  book  writers.  Those  commonly  given  wlien  the  attempt 
is  made  to  fix  with  accuracy  its  meaning  are  familiar.  It  is  said  in 
Benjamin  on  Sales,  §  1,  to  be  "  a  transfer  of  the  absolute  or  general 
property  in  a  thing  for  a  price  in  money."  In  §  2  that  author  elab- 
orates, with  references  to  authorities,  the  point  that  the  price  must 
be  in  money  and  that  any  other  consideration  constitutes  barter 
or  contract  for  the  transfer  of  propcrtv.  In  Five  Per  Cent  Cases, 
110  U.  S.  471,  478,  Mr.  Justice  Cray  said,  "A  sale,  in  the  ordinary 
sense  of  the  word,  is  a  transfer  of  property  for  a  fixed  price  in  money 
or  its  equivalent."  Gardner  r.  Lane,  12  Allen,  39,  43.  Price  in 
money  is  essential  to  a  strict  sale.  The  transfer  of  title  for  a 
consideration  of  a  different  nature  is  a  barter  or  exchange.  See, 
for  other  definitions,  35  Cyc.  25 ;  23  R.  C.  L.  1186.  On  the  other 
hand,  there  are  numerous  cases  where  the  word  "sale"  in  statutes 
has  been  given  a  broader  signification.  The  modern  tendency  is 
in  that  direction.     In  Callus  i".  Elmer,  193  Mass.  106,  at  page  109, 


244  OSGOOD    V.    TAX    COMMISSIOrsER.  [CHAP.    II. 

it  was  said  by  Mr.  Justice  Ilammond,  in  holding  a  transfer  of 
property  by  way  of  accord  and  satisfaction  of  a  pre-existing  debt  to 
be  a  sale  contran'  to  the  sales  in  bulk  act,  "  While  it  is  true  that  in 
its  strictest  sense  a  sale  is  a  transfer  of  personal  property  in  con- 
sideration of  money  paid  or  to  be  paid,  still  in  the  interpretation 
of  statutes  it  is  often  held  to  include  barter  and  any  transfer  of 
personal  property  for  a  valuable  consideration."  Said  Chief  Jus- 
tice Bigelow,  in  Howard  v.  Harris,  8  Allen,  297,  at  page  299:  "In 
a  general  and  popular  sense,  the  sale  of  an  article  signifies  the  trans- 
fer of  property  from  one  person  to  another  for  a  consideration  of 
value,  without  reference  to  the  particular  mode  in  which  the  con- 
sideration is  paid.  .  .  .  The  legal  distinction  between  a  sale  and 
an  exchange  is  a  purely  artificial  one;  the  rules  of  law  are  the  same 
as  applied  to  both  transactions."  A  statute  forbidding  sales  of 
intoxicating  liquor  has  been  held  to  include  barter  and  exchange  as 
well  as  strict  sales.  Commonwealth  v.  Clark,  14  Gray,  367,  372. 
Commonwealth  v.  Woelz,  219  Mass.  37,  38.  Exchanges  and  con- 
tracts to  exchange  are  included  within  the  definition  of  "  sale "  in 
the  sales  act.  St.  1908,  c.  237,  §§  1,  9  (2),  75.  Williston  on  Sales, 
§§  166,  170.  See  also  Arnold  v.  North  American  Chemical  Co.  232 
Mass.  196,  199.  Goward  v.  Waters,  98  Mass.  596.  Friend  v. 
Childs  Dining  Hall  Co.  231  Mass.  65,  68,  69.  The  word  "  sales  "  in 
the  statute  is  used  in  combination  with  the  word  "purchases." 
That  is  a  word  in  its  abstract  meaning  of  somewhat  more  compre- 
hensive signification.  "  It  includes  every  lawful  method  of  coming 
to  an  estate  by  the  act  of  a  party,  as  opposed  to  the  act  of  law.^' 
Burt  r.  Merchants'  Ins.  Co.  106  Mass.  356,  364. 

The  aim  of  the  court  in  every  instance  must  be  to  ascertain 
as  nearly  as  possible  the  intent  and  purpose  of  the  Legislature. 

On  analysis,  the  transaction  out  of  which  this  controversy  arises 
was  this :  The  petitioner  was  the  owner  of  stocks  of  an  ascer- 
tained value  on  January  1,  1916.  In  the  following  July,  without 
selling  these  stocks  for  cash,  she  used  them  as  the  consideration 
with  which  to  subscribe  for  and  acquire  by  purchase  other  stocks 
in  a  new  and  different  corporation.  Although  the  property  owned 
by  the  new  corporation  was  identical  with  that  owned  by  the  old 
corporation,  it  nevertheless  plainly  was  a  different  legal  entity. 
Brighton  Packing  Co.  v.  Butchers  Slaughtering  &  Melting  Asso- 
ciation, 211  Mass.  398.  Marsh  v.  Soutliern  Xew  England  Eailroad, 
230  Mass.  483,  498.  The  stock  obtained  by  the  petitioner  through 
exchange  was  different  in  kind  and  not  merely  in  degree  from  that 
which  she  owned  before.  It  was  not  the  same  corporation  and  the 
stock  itself  was  different  in  nature.  A  change  of  investment  had 
been  made  both  in  name  and  in  essence.  It  would  seem  something 
of  a  wrench  to  say  that  the  disposal  of  the  stock  in  the  old  corpora- 
tion for  stock  in  the  new  is  not  a  sale  for  purposes  of  taxation, 
when,  if  the  same  transaction  was  presented  for  consideration 
under  the  sales  act,  it  would  inevitably  be  treated  as  a  sale.  It 
hardly  would  be  consistent  to  hold  that  exchanging  grain  for  spir- 
ituous liquors  was  a  sale  constituting  a  crime,  as  was  held  by  this 


SECT.   V,]  DEGANAY  V.    LEDERER.  245 

court  in  Commonwcaltli  v.  Clark,  14  Gray,  367,  and  to  say  that  ex- 
changing stock  in  one  corporation  for  stock  in  another  corporation 
was  not  a  sale  for  taxation  purposes.  Whether  the  disposal  of  the 
stock  in  the  old  company  be  treated  as  a  strict  sale  or  not,  there 
seems  to  be  no  escape  from  holding  that  the  procurement  of  the 
stock  in  the  new  corporation  was  a  purchase.  Tliat  word,  unless 
narrowed  by  its  context,  signifies  the  acquisition  of  title  to  any 
commodity  for  cash,  on  credit,  or  for  any  other  equivalent  agreed 
upon.  Tliis  is  its  ordinary  meaning  according  to  tlie  common  un- 
derstanding of  the  business  world.  Bcrger  v.  United  States  Steel 
Corp.  18  Dick.  809,  817.  Doubtless  there  are  connections  in 
which  the  word  is  used  in  a  more  restricted  sense.  Robotham  r. 
Prudential  Ins.  Co.  19  Dick.  673,  685.  People  v.  Duffy-Mc- 
Innerney  Co.  122  App.  Div.  (N.  Y.)  336,  affirmed  in  193  N.  Y.  636. 
There  "is  nothing  in  the  context  of  the  present  statute  to  indicate 
limitations  upon  the  natural  meaning  of  the  word.  "  Purchase," 
both  in  its  ])opula'r  and  in  its  legal  signification  is  broad  enough  to 
include  the  acquirement  of  stock  tiirough  subscription  as  well  as  by 
bidding  on  the  stock  exchange. 

Tested  by  the  difference  in  value  of  the  stocks  purchased  as 
compared  with  those  exchanged  for  them  at  their  appraisal  at  the 
time  fixed  by  §  7  of  the  act,  the  petitioner  had  realized  a  gain. 
This  is  not  the  calculation  of  a  mere  paper  profit  or  an  unrealized 
increase  in  value,  which  is  not  taxable  under  the  act.  Tax  Commis- 
sioner V.  Putnam,  227  Mass.  522,  530.  The  gain  had  materialized 
by  procuring  title  to  a  wholly  different  kind  of  stock  in  a  new  cor- 
poration, whose  market  value  was  definite  and  ascertained.  The 
complainant  had  wholly  parted  with  the  old  and  become  the  legal 
owner  of  new  property.  It  follows  that  a  tax  on  this  gain  was 
lawful. 

In  accordance  with  the  terms  of  the  report,  the  entry  may  be, 
judgment  for  the  petitioner  in  the  sum  of  $1,119.03  with  interest 
from  July  7,  1919,  and  costs. 

So  ordered. 


DeGANAY  v.  LEDEREE. 
Supreme  Court  of  the  Uxited  States.     1919. 

[Reported  250  U.  8.  376.] 

The  Act  of  October  3,  1913,  c.  16,  ^  II,  A,  subdivision  1,  38  Stat. 
166,  provides: 

"  That  there  shall  be  levied,  assessed,  collected  and  paid  annually 
upon  the  entire  net  income  arising  or  accruing  from  all  sources  in 
the  preceding  calendar  year  to  every  citizen  of  the  United  States, 
whether  residing  at  home  or  abroad,  and  to  every  person  residing 
in  the  United  States,  though  not  a  citizen  thereof,  a  tax  of  1  per 


24G  DEGANAY     V.     LEDEREK.  [ciIAl'.     IL 

centum  per  annum  upon  such  income,  except  as  liereinafter  pro- 
vided;  and  a  like  tax  sliall  be  assessed,  levied,  collected,  and  paid 
annually  upon  the  entire  net  income  from  all  property  owned  and 
of  every  business,  trade,  or  profession  carried  on  in  the  United 
States  by  persons  residing  elsewhere." 

Under  this  statutory  provision  a  question  arose  as  to  the  taxability 
of  income  from  certain  securities  of  Emily  E.  DeGanay,  a  citizen 
and  resident  of  France.  The  District  Court  of  the  United  States 
for  the  Eastern  District  of  Pennsylvania  held  the  income  from  the 
securities  taxable.  239  Fed.  Eep.  568.  The  case  is  here  upon  certifi- 
cate from  the  Circuit  Court  of  xVppeals,  from  which  it  appears: 
That  Emilv  E.  DeGanay  is  a  citizen  of  France,  and  resides  in  th-t 
country.  That  her  father  was  an  American  citizen  domiciled  in 
Pennsvlvania,  and  died  in  1885,  having  devised  one-fourth  of  his 
residuary  estate,  consisting  of  real  property,  to  the  Pennsylvania 
Company  for  Insurance  on  Lives  and  Granting  Annities,  in  trust 
to  pay  the  net  income  thereof  to  her.  She  also  inherited  from  her 
father  a  large  amount  of  personal  property  in  her  own  right  free 
from  any  trust.  This  personal  property  is  invested  in  stocks  and 
bonds  of  corporations  organized  under  laws  of  the  United  States 
and  in  bonds  and  mortgages  secured  upon  property  in  Pennsylvania. 
Since  1885  the  Pennsylvania  Company  has  been  acting  as  her  agent 
under  power  of  attorney,  and  has  invested  and  reinvested  her  prop- 
erty, and  has  collected  and  remitted  to  her  the  net  income  therefrom. 
The  certificates  of  stocks,  bonds  and  mortgages  had  been  and  were 
in  1913  in  the  Company's  possession  in  its  offices  in  Philadelphia. 
The  Company  made  a  return  of  the  income  collected  for  the  plaintiff 
for  the  year  1913  both  from  her  real  estate,  which  is  not  in  contro- 
versy here,  and  her  net  income  from  corporate  stocks  and  bonds  and 
the  bonds  and  mortgages  held  in  her  own  right.  The  tax  was  paid 
under  protest  and  recovery  was  sought  by  the  proper  action. 

The  question  certified  is  limited  to  the  net  income  collected  by 
virtue  of  the  power  of  attorney  from  the  personal  property  owned 
by  the  plaintiff  in  her  own  right. 

The  power  of  attorney,  which  is  attached  to  the  certificate,  au- 
thorizes the  agent: 

"  To  sell,  assign,  transfer  any  stocks,  bonds,  loans,  or  other  secu- 
rities now  standing  or  that  may  licreafter  stand  in  my  name  on  the 
books  of  any  and  all  corporations,  national.  State,  municipal  or  pri- 
vate, to  enter  satisfaction  upon  the  record  of  any  indenture  or  mort- 
gage now  or  hereafter  in  my  name,  or  to  sell  and  assign  the  same 
and  to  transfer  policies  of  insurance,  and  the  proceeds,  also  any 
other  moneys  to  invest  and  reinvest  in  such  securities  as  they  may 
in  their  discretion  deem  safe  and  judicious  to  hold  for  my  account; 
to  collect  and  receipt  for  all  interest  and  dividends,  loans,  stocks, 
or  other  securities  now  or  hereafter  belonging  to  me,  to  endorse 
checks  payable  to  my  order  and  to  make  or  enter  into  any  agreement 
or  agreements  they  may  deem  necessary  and  best  for  my  interest 
in  the  management  of  my  business  and  affairs,  also  to  represent 
me  and  in  mv  behalf,  to  vote  and  act  for  me  at  all  meetings  con- 


1 


} 


SECT,  v.]  DEOANAY  V.    LEDEREE.  247 

nccted  with  any  company  in  wliicli  I  may  own  stocks  or  bonds  or  be 
interested  in  any  way  whatever,  with  power  also  as  attorney  or  attor- 
neys under  it  for  that  purpose  to  make  and  substitute,  and  to  do  all 
lawful  acts  requisite  for  effecting  the  premises,  hereby  ratifying;  and 
coufirmin^f  all  that  the  said  attorney  or  substitute  or  substitutes 
shall  do  theiein  by  virtue  of  these  i)resents." 

The  questi(jn  certilied  is:  "If  an  alien  non-resident  own  stocks, 
bonds,  and  mortgages  secured  upon  property  in  the  United  States 
or  payable  by  persons  or  corporations  there  domiciled;  and  if  the 
income  therefrom  is  collected  for  and  remitted  to  such  non-resident 
by  an  agent  domiciled  in  the  United  States;  and  if  the  agent  has 
physical  possession  of  the  certificates  of  stock,  the  bonds,  and  the 
mortgages;  is  such  income  sul)i('ct  to  an  income  tax  undi'r  the  Act 
of  October  3d,  1913-'" 

The  question  submitted  comes  to  this:  Js  the  income  from  the 
stock,  bonds,  and  mortgages,  held  by  the  Pennsylvania  Company, 
derived  from  property  owned  in  the  United  States?  A  learned 
argument  is  made  to  the  effect  that  the  stock  certificates,  bonds 
and  mortgages  are  not  property,  that  they  are  but  evidences  of 
the  ownership  of  interests  which  are  property;  that  the  prop- 
erty, in  a  legal  sense,  represented  by  the  securities,  would  exist 
if  the  physical  evidences  thereof  were  destroyed.  But  we  are  of 
opinion  that  these  refinements  are  not  decisive  of  congressional 
intent  in  using  the  term  "  ])ropcrty "  in  this  statute.  Unless 
the  contrary  appears,  statutory  words  are  presumed  to  be  used 
in  their  ordinary  and  usual  sense,  and  with  the  meaning  com- 
monly attributable  to  them.  To  the  general  understanding 
and  with  the  common  meaning  usually  attached  to  such  descrip- 
tive terms,  bonds,  mortgages,  and  certificates  of  stock  are  re- 
garded as  property.  By  State  and  federal  Statutes  they  are 
often  treated  as  property,  not  as  mere  evidences  of  the  interest 
which  they  represent.  In  Blackstone  v.  ^Miller,  188  U.  S.  189, 
20G,  this  court  held  that  a  deposit  by  a  citizen  of  Illinois  in  a  trust 
company  in  the  City  of  New  York  was  subject  to  the  transfer  tax 
of  the  State  of  New  York  .and  said  :  "  There  is  no  conflict  between 
our  views  and  the  point  decided  in  the  case  reported  under  the  name 
of  State  Tax  on  Foreign  Held  Bonds,  15  Wall.  300.  The  taxation 
in  that  case  was  on  the  interest  on  bonds  held  out  of  the  State. 
Bonds  and  negotiable  instruments  are  more  than  merely  evidences 
of  debt.  The  debt  is  inseparable  from  the  paper  which  declares  and 
constitutes  it,  by  a  tradition  which  comes  down  from  more  archaic 
conditions.     Bacon  v.  Hooker,  177  ]\Iassachusetts,  335,  337." 

The  Court  of  Appeals  of  New  York,  recognizing  the  same  prin- 
ciple treated  such  instruments  as  property  in  People  ex  rel.  Jefferson 
V.  Smith,  88  N.  Y.  576,  585. 

"  It  is  clear  from  the  statutes  referred  to  and  the  authorities  cited 
and  from  the  understanding  of  l)usiness  men  in  commercial  transac- 
tions, as  well  as  of  jurists  and  legislators,  that  mortgages,  bonds, 
bills  and  notes  have  for  many  purposes  come  to  be  regarded  as  prop- 
erty and  not  as  the  mere  evidences  of  debts,  and  that  they  mav  thus 


24S  SHAFFEE    V.     CARTER.  [ciIAP.    II. 

have  a  situs  at  the  place  where  they  are  found  like  other  visible, 
tangible  chattels.** 

\Ve  have  no  doubt  that  the  securities,  herein  involved,  are  prop- 
erty. Are  they  property  within  the  United  States?  It  is  insisted 
that  the  maxim  mobilia  sequuntur  persunain  applies  in  this  instance, 
and  that  the  situs  of  the  property  was  at  the  domicile  of  the  owner 
in  France.  But  this  court  has  frequently  declared  that  the  maxim, 
a  fiction  at  most,  must  yield  to  the  facts  and  circumstances  of  cases 
Avhich  require  it ;  and  that  notes,  bonds  and  mortgages  may  acquire 
a  situs  at  a  place  other  than  the  domicile  of  the  owner,  and  be  there 
reached  by  the  taxing  authority.  It  is  only  necessary  to  refer  to 
some  of  the  decisions  of  this  court.  New  Orleans  v.  Stempel,  175 
U.  S.  309;  Bristol  r.  Washington  County,  177  U.  S.  133;  Black- 
stone  r.  Miller,  supra;  State  Board  of  Assessors  v.  Comptoir  Na- 
tional d'Escompte,  191  U.  S.  388;  Carstairs  v.  Cochran,  193  U.  S. 
10;  Scottish  Union  &  National  Ins.  Co.  v.  Bowland,  196  U.  S.  611; 
Wheeler  v.  New  York,  233  U.  S.  434,  439;  Iowa  v.  Slimmer,  248 
U.  S.  115,  120.  Shares  of  stock  in  national  banks,  this  court  has 
held,  for  the  purpose  of  taxation  may  be  separated  from  the  domi- 
cile of  the  owner,  and  taxed  at  the  place  where  held.  Tappan  v. 
Merchants'  National  Bank,  19  Wall.  490. 

In  the  case  under  consideration  the  stocks  and  bonds  were  those 
of  corporations  organized  under  the  laws  of  the  United  States,  and 
the  bonds  and  mortgages  were  secured  upon  property  in  Pennsyl- 
vania. The  certificates  of  stock,  the  bonds  and  mortgages  were  in 
the  Pennsylvania  Company's  offices  in  Pliiladelphia.  Not  only  is 
this  so,  but  the  stocks,  bonds  and  mortgages  were  held  under  a 
powder  of  attorney  which  gave  authority  to  the  agent  to  sell,  assign, 
or  transfer  any  of  them,  and  to  invest  and  reinvest  the  proceeds 
of  such  sales  as  it  might  deem  best  in  the  management  of  the  business 
and  affairs  of  the  principal.  It  is  difficult  to  conceive  how  property 
could  be  more  completely  localized  in  the  United  States.  There  can 
be  no  question  of  the  power  of  Congress  to  tax  the  income  from 
such  securities.  Thus  situated  and  held,  and  with  the  authority 
given  to  the  local  agent  over  them,  we  think  the  income  derived  is 
clearly  from  property  within  the  United  States  within  the  meaning 
of  Congress  as  expressed  in  the  statute  under  consideration.  It  fol- 
lows that  the  question  certified  by  the  Circuit  Court  of  Appeals 
must  be  answered  in  the  affirmative. 

So  ordered. 

Me.  Justice  McReynolds  took  no  part  in  this  case. 


SHAFFER  V.  CARTER. 
Supreme  Court  of, the  United  States.     1920. 

[Reported  252  V.  8.  37,] 
Pitney^  J.     These  are  two  appeals,  taken  under  circumstances 
that  will  be  explained,  from  a  single  decree  in  a  suit  in  equity 


SECT,      v.]  SlIAFFEK    V.    CAKTER.  249 

brought  by  appellant  to  restrain  the  enforcement  of  a  tax  af?sessecl 
against  him  for  the  year  191G  under  the  Income  Tax  Law  of  the 
State  of  Oklahoma,  on  the  ground  of  the  unconstitutionality  of  the 
statute. 

A  previous  suit  having  the  same  object  was  brought  by  him  in  the 
same  court  against  tiie  otficials  then  in  office,  in  which  an  application 
for  an  interlocutory  injunction  heard  before  three  judges  pursuant 
to  §  266,  Judicial  Code,  was  denied,  one  judge  dissenting,  Shaffer 
V.  Howard,  250  Fed.  Kep.  873.  An  appeal  was  taken  to  this  court, 
but,  pending  its  determination,  the  terms  of  office  of  the  defendants 
expired,  and,  there  being  no  law  of  the  State  authorizing  a  revival 
or  continuance  of  the  action  against  their  successors,  we  reversed 
the  decree  and  remanded  the  cause  with  directions  to  dismiss  the 
bill  for  want  of  proper  parties.    "240  U.  S.  200. 

After  such  dismissal  the  present  defendant  Carter,  as  State  au- 
ditor, issued  another  tax  warrant  and  delivered  it  to  defendant 
Bruce,  Sheriff  of  Creek  County,  with  instructions  to  levy  upon  and 
sell  plaintiff's  property  in  that  county  in  order  to  collect  the  tax  in 
question;  and  the  sheriff  having  threatened  to  proceed,  this  suit 
was  commenced.  An  application  for  an  interlocutory  injunction, 
heard  before  three  judges,  was  denied  upon  the  authority  of  the 
decisions  in  250  Fed.  l^ep.  and  of  certain  recent  decisions  of  this 
court.  The  decree  as  entered  not  only  disposed  of  the  application 
but  dismissed  the  action.  Plaintiff,  apparently  unaware  of  this, 
appealed  to  this  court  under  §  266,  Judicial  Code,  from  the  refusal 
of  the  temporary  injunction.  Shortly  afterwards  he  took  an  appeal 
under  §  238,  Judicial  Code,  from  the  same  decree  as  a  final  decree 
dismissing  the  action.  The  latter  appeal  is  in  accord  with  correct 
practice,  since  the  denial  of  the  interlocutory  application  was  merged 
in  the  final  decree.    The  first  appeal  (No.  531)  will  be  dismissed. 

The  constitution  of  Oklahoma,  besides  providing  for  the  annual 
taxation  of  all  property  in  the  State  upon  an  ad  valorem  basis,  au- 
thorizes (Art.  10,  §  12)  the  employment  of  a  variety  of  other 
means  for  raising  revenue,  among  them  income  taxes. 

The  act  in  question  is  c,  164  of  the  Laws  of  1915,  Its  first  section 
reads  as  follows :  "  Each  and  every  person  in  this  State,  shall  be 
liable  to  an  annual  tax  upon  the  entire  net  income  of  such  person 
arising  or  accruing  from  all  sources  during  the  preceding  calendar 
year,  and  a  like  tax  shall  be  levied,  assessed,  collected  and  paid  an- 
nually upon  the  entire  net  income  from  all  property  owned,  and 
of  every  business,  trade  or  profession  carried  on  in  this  state  by 
persons  residing  elsewhere."  Subsequent  sections  define  what  the 
term  "  income "  shall  include ;  prescribe  how  net  income  shall  be 
computed ;  provide  for  certain  deductions ;  prescribe  vamng  rates 
of  tax  for  all  taxable  incomes  in  excess  of  $3,000,  this  amount  being 
deducted  (bv  way  of  exemption)  from  the  income  of  each  individual, 
and  for  one  living  with  spouse  an  additional  $1,000.  with  further 
deductions  where  there  are  cliildren  or  dependents,  exemptions  be- 
ing the  same  for  resident  and  non-resident:  require  (§  2)  a  return 
on  or  before  March  first  from  each  person  liable  for  an  income  tax 


250  SHAFFER  V.     CARTER.  [cHAP.  II. 

under  the  provisions  of  the  act  for  the  preceding  calendar  year; 
provide  (§  9)  that  the  State  Auditor  shall  revise  returns  and  hear 
and  determine  complaints,  with  power  to  correct  and  adjust  the 
assessment  of  income;  that  (§  10)  taxes  shall  hecome  delinquent 
if  not  paid  on  or  before  the  first  day  of  July,  and  the  State  Auditor 
shall  have  power  to  issue  to  any  sheriff  of  the  State  a  warrant  com- 
manding him  to  levy  the  amount  upon  the  personal  property  of  the 
delinquent  party;  and  (by  §  11)  "If  any  of  the  taxes  herein  levied 
become  delinquent,  they  shall  become  a  lien  on  all  the  property, 
personal  and  real,  of  such  delinquent  person,  and  shall  be  subject  to 
the  same  penalties  and  provisions  as  are  all  ad  vaJorem  taxes." 

Plaintilf,  a  non-resident  of  Oklahoma,  being  a  citizen  of  Illinois 
and  a  resident  of  Chicago  in  that  State,  was  at  the  time  of  the 
commencement  of  the  suit  and  for  several  years  theretofore  (includ- 
ing the3'ears  1915  and  1916)  engaged  in  the  oil  business  in  Oklahoma, 
having  purchased,  owned,  developed,  and  operated  a  number  of  oil 
and  gas  mining  leases,  and  being  the  owner  in  fee  of  certain  oil- 
producing  land,  in  that  State.  From  properties  thus  owned  and 
operated  during  the  year  1916  he  received  a  net  income  exceeding 
$1,500,000,  and  of  this  he  made,  under  protest,  a  return  which 
showed  that,  at  the  rates  fixed  by  the  act,  there  was  due  to  the  State 
an  income  tax  in  excess  of  $76,000.  The  then  State  Auditor  over- 
ruled the  protest  and  assessed  a  tax  in  accordance  with  the  return; 
the  present  Auditor  has  put  it  in  due  course  of  collection;  and 
plaintiff  resists  its  enforcement  upon  the  ground  that  the  act,  in 
so  far  as  it  subjects  the  incomes  of  non-residents  to  the  payment 
of  such  a  tax,  takes  their  property  without  due  process  of  law  and 
denies  to  them  the  equal  protection  of  the  laws,  in  contravention 
of  §  1  of  the  Fourteenth  x\mendment;  burdens  interstate  com- 
merce, in  contravention  of  the  commerce  clause  of  §  8  of  Art.  1  of 
the  Constitution ;  and  discriminates  against  non-residents  in  favor  of 
residents,  and  thus  deprives  plaintiff  and  other  non-residents  of  the 
])rivileges  and  immunities  of  citizens  and  residents  of  the  State  of 
Oklahoma,  in  violation  of  §  2  of  Art.  IV.  He  also  insists  that  the 
lien  attempted  to  be  imposed  upon  his  property  pursuant  to  §  11  for 
taxes  assessed  upon  income  not  arising  out  of  the  same  property 
would  deprive  him  of  property  without  due  process  of  law. 

As  ground  for  resorting  to  equity,  the  bill  alleges  that  plaintiff  is 
the  owner  of  various  oil  and  gas  mining  leases  covering  lands  in 
Creek  County,  Oklahoma,  and  that  the  lien  asserted  thereon  by 
virtue  of  the  levy  and  tax  warrant  creates  a  cloud  upon  his  title. 
Thisi  entitles  him  to  bring  suit  in  equity  (Union  Pacific  Ry.  Co.  v. 
Cheyenne,  113  IT.  S.  516,  525;  Pacific"  Express  Co.  v.  Seibert  143 
U.  S.  339,  348;  Ogden  City  v.  Armstrong,  168  U.  S.  224,  237;  Ohio 
Tax  Cases,  232  IT.  S.  576,  587;  Greene  -y.  Louisville  &  Intcrurban 
R.  R.  Co.,  244  U.  S.  499,  506),  unless  the  contention  that  he  has 
a  plain,  adequate,  and  complete  remedy  at  law  be  well  founded. 

This  contention  is  based,  first,  upon  the  provision  of  §  9  of  c. 
164,  giving  to  the  State  Auditor  the  same  power  to  correct  and 
adjust  an  assessment  of  income  that  is  given  to  the  county  board 


SECT,  v.]  SHAFFER  V.    CARTEK.  251 

of  equalization  in  cases  of  ad  valorem  assessments,  taken  in  connec- 
tion with  c.  107  of  the  Laws  of  1!J15,  which  j)rovi(le.s  (Art.  1,  Subdiv. 
B,  §  2,  p.  147)  for  an  appeal  from  that  board  to  the  district  court 
of  the  county.  In  a  recent  decision  (Berryhill  v.  Carter,  7G  Okla- 
homa, 248),  the  Supreme  Court  of  the  State  held  that  an  aggrieved 
income  taxpayer  may  have  an  appeal  under  this  section,  and  that 
thus  "all  matters  complained  of  may  be  reviewed  and  adjusted 
to  the  extent  that  justice  may  demand."  Rut  the  case  related  to 
"correcting  and  adjusting  an  income  tax  return,"  and  the  decision 
merely  established  the  appeal  to  the  district  court  as  the  appropriate 
remedy,  rather  than  an  application  to  the  Supreme  Court  for  a 
writ  of  certiorari.  It  falls  short  of  indicating  —  to  say  nothing  of 
plainly  showing — that  this  procedure  would  afford  an  adequate 
remedy  to  a  party  contending  that  the  income  tax  law  itself  was 
repugnant  to  the  Constitution  of  the  United  States. 

Secondly,  reference  is  made  to  §  7  of  Subdiv.  B,  xVrt.  1,  of  c. 
107,  Oklahoma  Laws  1915,  p.  149,  wherein  it  is  provided  that  where 
illegality  of  a  tax  is  alleged  to  arise  by  reason  of  some  action  from 
which  the  laws  provide  no  appeal,  tlie  aggrieved  person  on  paying 
the  tax  may  give  notice  to  the  officer  collecting  it,  stating  the  grounds 
of  complaint  and  that  suit  will  be  brought  against  him ;  whereupon 
it  is  made  the  duty  of  such  officer  to  hold  the  tax  until  the  final 
determination  of  such  suit  if  brought  within  thirty  days;  and  if 
it  be  determined  that  the  tax  was  illegally  collected,  the  officer  is 
to  repay  the  amount  found  to  be  in  excess  of  the  legal  and  correct 
amount.  But  this  section  is  one  of  several  that  have  particular 
reference  to  the  procedure  for  collecting  ad  valorem  taxes;  and 
they  are  prefaced  by  this  statement  (p.  147)  :  "  Subdivision  B.  To 
the  existing  provisions  of  law  relating  to  the  ad  valorem  or  direct 
system  of  taxation  the  following  provisions  are  added :"  Upon  this 
ground,  in  Gipsy  Oil  Co.  v.  Howard  and  companion  suits  brought 
by  certain  oil-producing  companies  to  restrain  enforcement  of  taxes 
authorized  by  the  gross  production  tax  law  (Sess.  Laws  1916,  c. 
39,  p.  102),  upon  the  ground  that  they  were  an  unlawful  imposi- 
tion upon  federal  instrumentalities,  the  United  States  District  Court 
for  the  Western  District  of  Oklahoma  held  that  the  legal  remedy 
provided  in  §  7  of  c.  107  applied  only  to  ad  valorem  taxes,  and  did 
not  constitute  a  bar  to  equitable  relief  against  the  production  taxes. 
Defendants  appealed  to  this  court,  and  assigned  this  ruling  for  error, 
inter  alia;  but  they  did  not  press  the  point,  and  the  decrees  were 
affirmed  upon  the  merits  of  the  federal  question.  Howard  v.  Gipsy 
Oil  Co.,  247  U.  S.  503. 

We  deem  it  unnecessar}^  to  pursue  further  the  question  whether 
either  of  the  statutory  provisions  referred  to  furnishes  an  adequate 
legal  remedy  against  income  taxes  assessed  under  an  unconstitu- 
tional law,  since  one  of  the  grounds  of  complaint  in  the  present 
case  is  that,  even  if  the  tax  itself  be  valid,  the  procedure  prescribed 
by  §  11  of  the  Income  Tax  Law  for  enforcing  such  a  tax  by  impos- 
ing a  lien  upon  the  taxpayer's  entire  property,  as  threatened  to  be 
put  into  effect  against  plaintiff's  property  for  taxes   not  assessed 


252  SHAFFER  r.  CARTER.  [cHAP.  II. 

against  the  property  itself  and  not  confined  to  the  income  that 
proceeded  from  the  same  property,  is  not  ''  due  process  of  law," 
within  the  requirement  of  the  Fourteenth  Amendment.  For  re- 
moval of  a  cloud  upon  title  caused  by  an  invalid  lien  imposed  for 
a  tax  valid  in  itself,  there  appears  to  be  no  legal  remedy.  Hence, 
on  this  ground  at  least,  resort  was  properly  had  to  equity  for  relief ; 
and  since  a  court  of  equity  does  not  "  do  justice  by  halves,"  and  will 
prevent,  if  possible,  a  multiplicity  of  suits,  the  jurisdiction  extends 
to  the  disposition  of  all  questions  raised  by  the  bill.  Camp  v.  Boyd, 
229  U.  S.  530,  551-552;  McGowan  v.  Parish,  237  U.  S.  285,  296. 

This  brings  us  to  the  merits. 

Under  the  "due  process  of  law"  provision  appellant  makes  two 
contentions:  first,  tliat  the  State  is  without  jurisdiction  to  levy  a 
tax  upon  the  income  of  non-residents;  and,  secondly,  that  the  lien 
is  invalid  because  imposed  upon  all  his  property  real  and  personal, 
without  regard  to  its  relation  to  the  production  of  his  income. 

These  are  separate  questions,  and  will  be  so  treated.  The  tax 
might  be  valid,  although  the  measures  adopted  for  enforcing  it  were 
not.  Governmental  jurisdiction  in  matters  of  taxation,  as  in  the 
exercise  of  the  judicial  function,  depends  upon  the  power  to  enforce 
the  mandate  of  the  State  by  action  taken  within  its  borders,  either 
in  personam  or  in  rem  according  to  the  circumstances  of  the  case, 
as  by  arrest  of  the  person,  seizure  of  goods  or  lands,  garnishment  of 
credits,  sequestration  of  rents  and  profits,  forfeiture  of  franchise, 
or  the  like;  and  the  jurisdiction  to  act  remains  even  though  all 
permissible  measures  be  not  resorted  to.  Michigan  Trust  Co.  v. 
Ferry,  228  U.  S.  346,  353;  Ex  parte  Indiana  Transportation  Co., 
244  U.  S.  456,  457. 

It  will  be  convenient  to  postpone  the  question  of  the  lien  until 
all  questions  as  to  the  validity  of  the  tax  have  been  disposed  of. 

The  contention  that  a  State  is  without  jurisdiction  to  impose  a 
tax  upon  the  income  of  non-residents,  while  raised  in  the  present 
case,  was  more  emphasized  in  Travis  v.  Yale  &  Towne  Mfg.  Co., 
decided  this  day,  252  U.  S.  60,  involving  the  income  tax  law  of  the 
State  of  New  York.  There  it  was  contended,  in  substance,  that  while 
a  State  may  tax  the  property  of  a  non-resident  situate  within  its 
borders,  or  may  tax  the  incomes  of  its  own  citizens  and  residents 
because  of  the  privileges  they  enjoy  under  its  constitution  and  laws 
and  the  protection  they  receive  from  the  State,  yet  a  non-resident, 
although  conducting  a  business  or  carrying  on  an  occupation  there, 
cannot  be  required  through  income  taxation  to  contribute  to  the 
governmental  expenses  of  the  State  whence  his  income  is  derived; 
that  an  income  tax,  as  against  non-residents,  is  not  only  not  a  property 
tax  but  is  not  an  excise  or  privilege  tax,  since  no  privilege  is  granted ; 
the  right  of  the  non-citizen  to  carry  on  his  business  or  occupation 
in  the  taxing  State  being  derived,  it  is  said,  from  the  provisions 
of  the  Federal  Constitution. 

This  radical  contention  is  easily  answered  by  reference  to  funda- 
mental principles.  In  our  system  of  government  the  States  have 
general  dominion,  and,  saving  as  restricted  by  particular  provisions 


SECT,   v.]  SHAFFKU  V.    CAKTER.  253 

of  the  Federal  Constitution,  complete  dominion  over  all  persons, 
property, and  business  transactions  witliin  their  borders;  such  assume 
and  perform  tlie  duty  of  preservin<^  and  protecting  all  such  persons, 
property,  and  business,  and,  in  conseijuence,  have  tiie  power  normally 
pertaining  to  governments  to  resort  to  all  reasonable  forms  of  taxa- 
tion in  order  to  defray  the  governmental  expenses.  Certainly  they 
are  not  restricted  to  property  taxation,  nor  to  any  particular  form 
of  excises.  In  well-ordered  society,  property  has  value  chietiy  tov 
what  it  is  capable  of  producing,  and  the  activities  of  mankind  are 
devoted  largely  to  making  recurrent  gains  from  the  use  and  develop- 
ment of  property,  from  tillage,  mining,  manufacture,  from  the  em- 
ployment of  human  skill  and  labor,  or  from  a  comljination  of  some 
of  these;  gains  capable  of  being  devoted  to  their  own  support,  and 
the  surplus  accunmlatod  as  an  increase  of  capital.  That  the  State, 
from  whose  laws  property  and  business  and  industry  derive  the 
protection  and  security  without  which  production  and  gainful  oc- 
cupation would  be  impossible,  is  debarred  from  exacting  a  share  of 
those  gains  in  the  form  of  income  taxes  for  the  support  of  the 
government,  is  a  proposition  so  wholly  inconsistent  with  fundamen- 
tal principles  as  to  be  refuted  by  its  mere  statement.  That  it  may 
tax  the  land  but  not  the  crop,  the  tree  but  not  the  fruit,  the  mine 
or  well  but  not  the  product,  the  business  but  not  the  profit  derived 
from  it,  is  wholly  inadmissible. 

Income  taxes  are  a  recognized  method  of  distributing  the  burdens 
of  government,  favored  because  requiring  contributions  from  those 
who  realize  current  pecuniary  benefits  under  the  protection  of  the 
government,  and  because  the  tax  may  be  readily  proportioned  to  their 
ability  to  pay.  Taxes  of  this  character  were  imposed  by  several  of 
the  States  at  or  shortly  after  the  adoption  of  the  Federal  Constitu- 
tion. New  York  Laws  17T8,  c.  17;  Heport  of  Oliver  Wolcott,  Jr., 
Secretary  of  the  Treasury,  to  4th  Cong.,  ^d  sess.  (1796),  concerning 
Direct  Taxes;  American  State  Papers,  1  Finance,  423,  427,  429, 
437,  439. 

The  rights  of  the  several  States  to  exercise  the  widest  liberty  with 
respect  to  the  imposition  of  internal  taxes  always  has  been  recognized 
in  the  decisions  of  this  court.  In  McCulloch  v-  Maryland,  4  Wheat. 
316,  while  denying  their  power  to  impose  a  tax  upon  any  of  the 
operations  of  the  Federal  Government,  Mr.  Chief  Justice  Marshall, 
speaking  for  the  court,  conceded  (pp.  428-429)  that  the  States 
have  full  power  to  tax  their  own  people  and  their  own  property,  and 
also  that  the  power  is  not  confined  to  the  people  and  property  of  a 
State,  but  may  be  exercised  upon  every  object  brought  within  its 
jurisdiction;  saying:  "It  is  obvious,  that  it  is  an  incident  of  sover- 
eignty, and  is  co-extensive  with  that  to  which  it  is  an  incident.  All 
subjects  over  which  the  sovereign  power  of  a  State  extends,  are  objects 
of  taxation,"  etc.  In  ^Michigan  Central  E.  TJ.  Co.  v.  Powers,  201  II.  S. 
245,  the  court,  by  Mr.  Justice  Brewer,  said  (pp.  292,  293)  :  "We 
have  had  frequent  occasion  to  consider  questions  of  state  taxation 
in  the  light  of  the  Federal  Constitution,  and  the  scope  and  limits 
of  National  interference  are  well  settled.    There  is  no  general  super- 


254  SHAFFER  V.     CARTER.  [cHAP.  II. 

vision  on  the  part  of  the  Xation  over  state  taxation,  and  in  respect 
to  the  latter  the  State  has,  speaking  generally,  the  freedom  of  a 
sovereign  both  as  to  objects  and  methods."  That  a  State  may  tax 
callings  and  occupations  as  well  as  persons  and  property  has  long 
been  recognized.  ''  The  power  of  taxation,  however  vast  in  its  char- 
acter and  searching  in  its  extent,  is  necessarily  limited  to  subjects 
within  the  jurisdiction  of  the  State.  These  subjects  are  persons, 
property,  and  business.  ...  It  [taxation]  may  touch  business  in 
the  almost  infinite  forms  in  which  it  is  conducted,  in  professions, 
in  commerce,  in  manufactures,  and  in  transportation.  Unless  re- 
strained by  provisions  of  the  Federal  Constitution,  the  power  of 
the  State  as  to  the  mode,  form,  and  extent  of  taxation  is  unlimited, 
where  the  subjects  to  which  it  applies  are  within  her  jurisdiction." 
State  Tax  in  Foreign-Held  Bonds,  15  Wall.  300,  319.  See  also 
Welton  V.  Missouri,  91  U.  S.  275,  278;  Armour  &  Co.  v.  Virginia, 
246  U.  S.  1,  G ;  American  Mfg.  Co.  v.  St.  Louis,  250  U.  S.  459,  463. 

And.  we  deem  it  clear,  upon  principle  as  well  as  authority,  that 
just  as  a  State  may  impose  general  income  taxes  upon  its  own  citi- 
zens and  residents  whose  persons  are  subject  to  its  control,  it  may, 
as  a  necessary  consequence,  levy  a  duty  of  like  character,  and  not 
more  onerous  in  its  effect,  upon  incomes  accruing  to  non-residents 
from  their  property  or  business  within  the  State,  or  their  occupations 
carried  on  therein;  enforcing  payment,  so  far  as  it  can,  by  the  ex- 
ercise of  a  just  control  over  persons  and  property  within  its  borders. 
This  is  consonant  with  numerous  decisions  of  this  court  sustaining 
etate  taxation  of  credits  due  to  non-residents,  New  Orleans  v.  Stem- 
pel,  175  U.  S.  309,  320,  et  seq.;  Bristol  v.  Washington  County,  177 
U.  S.  133,  145;  Liverpool  &c  Ins.  Co.  v.  Orleans  Assessors,  221  U. 
S.  346,  354;  and  sustaining  federal  taxation  of  the  income  of  an 
alien  non-resident  derived  from  securities  held  in  this  country,  De 
Ganay  v.  Lederer,  250  U.  S.  376. 

That  a  State,  consistently  with  the  Federal  Constitution,  may  not 
prohibit  the  citizens  of  other  States  from  carrying  on  legitimate  busi- 
ness within  its  borders  like  its  own  citizens,  of  course  is  granted; 
but  it  does  not  follow  that  the  business  of  non-residents  may  not  be 
required  to  make  a  ratable  contribution  in  taxes  for  the  support  of 
the  government.  On  the  contrary,  the  very  fact  that  a  citizen  of 
one  State  has  the  right  to  hold  property  or  carry  on  an  occupation 
or  business  in  another  is  a  very  reasonable  ground  for  subjecting 
such  non-resident,  although  not  personally  yet  to  the  extent  of  his 
property  held,  or  his  occupation  or  business  carried  on  therein,  to 
a  duty  to  pay  taxes  not  more  onerous  in  effect  than  those  imposed 
under  like  circumstances  upon  citizens  of  the  latter  State.  Section 
2  of  Art.  IV  of  the  Constitution  entitles  him  to  the  privileges  and 
immunities  of  a  citizen,  but  no  more;  not  to  an  entire  immunity 
from  taxation,  nor  to  any  preferential  treatment  as  compared  with 
resident  citizens.  It  protects  him  against  discriminatory  taxation, 
but  gives  him  no  right  to  be  favored  by  discrimination  or  exemp- 
tion.    See  Ward  v.  Maryland,  12  Wall.  418,  430. 

Oklahoma  has  assumed  no  power  to  tax  non-residents  with  respect 


SKCT.      v.]  SIIAKFKR    i".     CAR'IKK.  255 

to  income  derived  from  property  or  business  beyond  the  borders 
of  the  State.  The  first  section  of  the  act,  while  imposing  a  tax 
upon  inhabitants  with  respect  to  their  entire  net  income  arising 
from  all  sources,  confines  tiie  tax  upon  non-residents  to  their  net 
income  from  property  owned  and  business,  etc.,  carried  on  within 
the  State.  A  similar  distinction  lias  been  observed  in  our  federal 
income  tax  laws,  from  one  of  the  earliest  down  to  the  present.^  The 
Acts  of  18G1  {U  Stat.  30!))  and  \HCA  (1.3  Stat.  2S1,  417)  confined 
the  tax  to  persons  residing  in  the  United  States  and  citizens  residing 
abroad.  But  in  18G6  (14  Stat.  137-138)  there  was  inserted  by 
amendment  the  following:  "  And  a  like  tax  shall  be  levied,  collected, 
and  paid  annually  upon  the  gains,  profits,  and  income  of  every 
business,  trade,  or  profession  carried  on  in  the  United  States  by 
persons  residing  witliout  the  United  States,  not  citizens  thereof." 
Similar  provisions  were  embodied  in  the  Acts  of  1870  and  1894; 
and  in  the  Act  of  1!)13  (38  Stat.  1G6),  after  a  clause  imposing  a 
tax  upon  the  entire  net  income  arising  or  accruing  from  all  sources 
(with  exceptions  not  material  here)  to  every  citizen  of  the  United 
States,  whether  residing  at  home  or  abroad,  and  to  every  person 
residing  in  the  Unitecl  States  though  not  a  citizen  thereof,  the 
following  appears:  "and  a  like  tax  shall  be  assessed,  levied,  collected, 
and  paid  annually  upon  the  entire  net  income  from  all  property 
owned  and  of  every  business,  trade,  or  profession  carried  on  in  the 
United  States  by  persons  residing  elsewhere."  Evidently  this  fur- 
nished the  model  for  §  1  of  the  Oklahoma  statute. 

Xo  doubt  is  suggested  (the  former  requirement  of  apportionment 
having  been  removed  by  constitutional  amendment)  as  to  the  power 
of  Congress  thus  to  impose  taxes  upon  incomes  produced  within 
the  borders  of  the  United  States  or  arising  from  sources  located 
therein,  even  though  the  income  accrues  to  a  non-resident  alien. 
And,  so  far  as  the  question  of  jurisdiction  is  concerned,  the  due  pro- 
cess clause  of  the  Fourteenth  Amendment  imposes  no  greater  restric- 
tion in  this  regard  u]>on  the  several  States  than  the  corresponding 
clause  of  Fifth  Amendment  imposes  upon  the  United  States. 

It  is  insisted,  however,  both  by  appellant  in  this  case  and  by  the 
opponents  of  the  New  York  law  in  Travis  v.  Yale  &  Towne  Mfg. 
Co.,  that  an  income  tax  is  in  its  nature  a  personal  tax,  or  a  subjec- 
tive tax  imposing  personal  liability  upon  the  recipient  of  the  in- 
come; and  that  as  to  a  non-resident  the  State  has  no  jurisdiction 
to  impose  such  a  liability.  This  argument,  upon  analysis,  res.olves 
itself  into  a  mere  question  of  definitions,  and  has  no  legitimate 
bearing  upon  any  question  raised  under  the  Federal   Constitution. 

»  Acts  of  Augaist  5,  1861,  c.  45,  §  40,  12  Stat.  202,  300;  June  30,  1864, 
c.  173,  §116.  13  Stat.  223,  281;  July  4,  1864,  Joint  Res.  77,  13  Stat.  417; 
July  13,  1866,  c.  184,  §  0,  14  Stat.  OS.  137-138;  March  2.  1867,  c.  160.  § 
13, '14  Stat.  471,  477-478;  Julv  14,  1870.  c.  2ri5,  §  6.  16  Stat.  256,  257; 
Au<nist  27,  1804,  c.  340,  §  27,  28  Stat.  500.  553;  Octol>or  3.  1013,  c.  16,  § 
IT,  A.  Subd.  1,  38  Stat.  114,  166;  SoptomUcr  8,  1016,  c.  463,  Title  I. 
Part  1,  §  1,  a,  30  Stat.  756;  Octoher  3,  1017,  c.  63,  Title  I,  §§  1  and  2,  40 
Stat.  300;  February  24,  1010,  c.  18,  §§  210,  213  (c),  40  Stat.  1057,  1062, 
1066. 


256  SHAFFER    V.     CAllTEE.  [cHAP.     II. 

For,  -where  the  question  is  whether  a  state  taxing  law  contravenes 
rights  secured  by  that  instrument,  the  decision  must  depend  not 
upon  any  mere  question  of  form,  construction,  or  definition,  but 
upon  the  practical  operation  and  effect  of  the  tax  imposed.  St. 
Louis  Southwestern  Ky.  Co.  v.  Arkansas,  235  U.  S.  350,  362 ;  Moun- 
tain Timber  Co.  v.  Washington,  243  U.  S.  219,  237;  Crew  Levick 
Co.  r.  Pennsylvania,  245  U.  S.  292,  294;  American  Mfg.  Co.  v. 
St.  Louis,  250  U.  S.  459,  463.  The  practical  burden  of  a  tax  imposed 
upon  the  net  income  derived  by  a  non-resident  from  a  business 
carried  on  within  the  State  certainly  is  no  greater  than  that  of  a 
tax  upon  the  conduct  of  the  business,  and  this  the  State  has  the 
la^^'ful  power  to  impose,  as  we  have  seen. 

The  fact  that  it  required  the  personal  skill  and  management  of 
appellant  to  bring  his  income  from  producing  property  in  Okla- 
homa to  fruition,  and  that  his  management  was  exerted  from  his 
place  of  business  in  another  State,  did  not  deprive  Oklahoma  of 
jurisdiction  to  tax  the  income  which  arose  within  its  own  borders. 
The  personal  element  cannot,  by  any  fiction,  oust  the  jurisdiction 
of  the  State  within  which  '  the  income  actually  arises  and  whose 
authority  over  it  operates  in  rem.  At  most,  there  might  be  a  ques- 
tion whether  the  value  of  the  service  of  management  rendered  from 
without  the  State  ought  not  to  be  allowed  as  an  expense  incurred 
in  producing  the  income ;  but  no  such  question  is  raised  in  the  pres- 
ent case,  hence  we  express  no  opinion  upon  it. 

The  contention  that  the  act  deprives  appellant  and  others  sim- 
ilarly circumstanced  of  the  privileges  and  immunities  enjoyed  by 
residents  and  citizens  of  the  State  of  Oklahoma,  in  violation  of  § 
2  of  Art.  IV  of  the  Constitution,  is  based  upon  two  grounds,  which 
are  relied  upon  as  showing  also  a  violation  of  the  "  equal  protection  " 
clause  of  the  Fourteenth  Amendment. 

One  of  the  rights  intended  to  be  secured  by  the  former  provision 
is  that  a  citizen  of  one  State  may  remove  to  and  carry  on  business 
in  another  without  being  subjected  in  property  or  person  to  taxes 
more  onerous  than  the  citizens  of  the  latter  State  are  subjected  to. 
Paul  V.  Virginia,  8  Wall.  168,  180;  Ward  v.  Maryland,  12  Wall. 
418,  430;  Maxwell  v.  Bugbee,  250  U.  S.  525,  527.  The  judge  who 
dissented  in  Shaffer  v.  Howard,  250  Fed.  Rep.  873,  883,  concluded 
that  the  Oklahoma  income  tax  law  offended  in  this  regard,  upon 
the  ground  (p.  888)  that  since  the  tax  is  as  to  citizens  of  Oklahoma 
a  purely  personal  tax  measured  by  their  incomes,  while  as  applied 
to  a  non-resident  it  is  "essentially  a  tax  upon  his  property  and 
business  within  the  State,  to  which  the  property  and  business  of 
citizens  and  residents  of  the  State  are  not  subjected,"  there  was  a 
discrimination  against  the  non-resident.  We  are  unable  to  accept 
this  reasoning.  It  errs  in  paying  too  much  regard  to  theoretical 
distinctions  and  too  little  to  the  practical  effect  and  operation  of 
the  respective  taxes  as  levied;  in  failing  to  observe  that  in  effect 
citizens  and  residents  of  the  State  are  subjected  at  least  to  the  same 
burden  as  non-residents,  and  perhaps  to  a  greater,  since  the  tax  im- 
posed upon  the  former  includes  all  income  derived  from  their  prop- 


SECT,      v.]  SHAFFER    V.    CAltTER.  257 

erty  and  business  within  the  State  and,  in  addition,  any  income 
they  may  derive  from  outside  sources. 

Appelhnit  contends  that  there  is  a  denial  to  non-citizens  of  the 
privileges  and  iiinnunities  to  which  they  are  entitled,  and  also  a 
denial  of  the  equal  protection  of  the  laws,  in  that  the  act  permits 
residents  to  deduct  from  their  gross  income  not  only  losses  incurred 
within  the  State  of  Oklahonui  but  also  those  sustained  outside  of 
that  State,  while  non-residents  may  deduct  only  those  incurred  with- 
in the  fetate.  The  difference,  however,  is  only  such  as  arises  nat- 
urally from  the  extent  of  the  jurisdiction  of  the  State  in  the  two 
classes  q|  cases,  and  cannot  be  regarded  as  an  unfriendly  or  unrea- 
sonable discrimination.  As  to  residents  it  may,  and  does,  exert 
its  taxing  power  over  their  income  from  all  sources,  whether  within 
or  without  the  State,  and  it  accords  to  them  a  corresponding  priv- 
ilege of  deducting  their  losses,  wherever  these  accrue.  As  to  non- 
residents, the  jurisdiction  extends  only  to  their  property  owned 
within  the  State  and  their  business,  trade,  or  profession  carried 
on  therein,  and  the  tax  is  only  on  such  income  as  is  derived 
from  those  sources.  Hence  there  is  no  obligation  to  accord  to  them 
a  deduction  by  reason  of  losses  elsewhere  incurred.  It  may  be  re- 
marked, in  passing,  that  there  is  no  showing  that  appellant  has 
sustained  such  losses,  and  so  he  is  not  entitled  to  raise  this  question. 

It  is  urged  that,  regarding  the  tax  as  imposed  upon  the  l)usiness 
conducted  within  the  State,  it  amounts  in  the  case  of  appellant's 
business  to  a  burden  upon  interstate  commerce,  because  the  products 
of  his  oil  operations  are  shipped  out  of  the  State.  Assuming  that 
it  fairly  appears  that  his  method  of  business  constitutes  interstate 
commerce,  it  is  sufficient  to  say  that  the  tax  is  imposed  not  upon 
the  gross  receipts,  as  in  Crew  Levick  Co.  v.  Pennsylvania,  245  U. 
S.  292,  but  only  upon  the  net  proceeds,  and  is  plainly  sustainable 
even  if  it  includes  net  gains  from  interstate  commerce.  U.  S.  Glue 
Co.  V.  Oak  Creek,  247  U.  S.  321.  Compare  Peck  &  Co.  v.  Lowe, 
247  U.  S.  165. 

Reference  is  made  to  the  gross  production  tax  law  of  1915  (c. 
107,  Art.  2,  Subdiv.  A,  §  1 ;  Sess.  Laws  1915,  p.  151),  as  amended 
by  c.  39  of  Sess.  Laws  1916  (p.  104),  under  which  every  person 
or  corporation  engaged  in  producing  oil  or  natural  gas  within  the 
State  is  required  to  pay  a  tax  equal  to  3  per  centum  of  the  gross 
value  of  such  product  in  lieu  of  all  taxes  imposed  by  the  State, 
counties,  or  municipalities  upon  the  land  or  tlie  leases,  mining  rights, 
and  privileges,  and  the  machinery,  appliances,  and  equipment,  per- 
taining to  such  production.  It  is  contended  that  payment  of  the 
gross  production  tax  relieves  the  producer  from  the  pa^Tnent  of  the 
income  tax.  This  is  a  question  of  state  law,  upon  which  no  con- 
trolling decision  by  the  Supreme  Court  of  the  State  is  cited.  We 
overrule  the  contention,  deeming  it  clear,  as  a  matter  of  construction, 
that  the  gross  production  tax  was  intended  as  a  substitute  for  the 
ad  valorem  property  tax  but  not  for  the  income  tax,  and  that  there 
is  no  such  repugnance  between  it  and  the  income  tax  as  to  produce 
a  repeal  by  implication.     Xor,  even  if  the  effect  of  this  is  akin  to 


258  SHAFFER     i^.     CARTER.  [ciIAP.     II. 

double  taxation,  can  it  be  regarded  as  obnoxious  to  the  Federal 
Constitution  for  that  reason,  since  it  is  settled  that  nothing  in  that 
instrument  or  in  the  Fourteenth  Amendment  prevents  the  States 
from  imposing  double  taxation,  or  any  other  form  of  unequal  taxa- 
tion, so  long  as  the  inequality  is  not  based  upon  arbitrary  distinc- 
tions. St.  Louis  Southwestern  Ky.  Co.  v.  Arkansas,  2;}.")  U.  S.  350, 
367-368. 

The  contention  that  there  is  a  want  of  due  process  in  the  pro- 
ceedings for  enforcement  of  the  tax,  especially  in  the  lien  imposed 
by  §  11  upon  all  of  the  delinquent's  property,  real  and  personal, 
reduces  itself  to  this:  that  the  State  is  without  power  to  create  a 
lien  upon  any  property  of  a  non-resident  for  income  taxes  except 
the  very  property  from  which  the  income  proceeded;  or,  putting  it 
in  another  way,  that  a  lien  foi-  an  income  tax  may  not  be  imposed 
upon  a  non-resident's  unproductive  property,  nor  upon  any  partic- 
ular productive  property  beyond  the  amount  of  the  tax  upon  the 
income  that  has  proceeded  from  it. 

But  the  facts  of  the  case  do  not  raise  this  question.  It  clearly 
appears  from  the  averments  of  the  bill  that  the  whole  of  plaintiff's 
property  in  the  State  of  Oklahoma  consists  of  oil-producing  land,  oil 
and  gas  mining  leaseholds,  and  other  property  used  in  production 
of  oil  and  gas;  and  that,  beginning  at  least  as  early  as  the  year  1915, 
when  the  act  was  passed,  and  continuing  without  interruption  until 
the  time  of  the  commencement  of  the  suit  (April  16,  1919),  he 
was  engaged  in  the  business  of  developing  and  operating  these 
properties  for  the  production  of  oil,  his  entire  business  in  that  and 
other  States  was  managed  as  one  business,  and  his  entire  net  income 
in  the  State  for  the  year  1916  was  derived  from  that  business.  Lay- 
ing aside  the  probability  that  from  time  to  time  there  may  have 
been  changes  arising  from  purchases,  new  leases,  sales,  and  expira- 
tions (none  of  which,  however,  is  set  forth  in  the  bill),  it  is  evident 
that  the  lien  will  rest  upon  the  same  property  interests  which  were 
the  source  of  the  income  upon  which  the  tax  was  imposed.  The  entire 
jurisdiction  of  the  State  over  appellant's  property  and  business 
and  the  income  that  he  derived  from  them  —  the  only  jurisdiction 
that  it  has  sought  to  assert  —  is  a  jurisdiction  i?i  rem;  and  we  are 
clear  that  the  State  acted  within  its  lawful  power  in  treating  his 
property  interests  and  business  as  having  both  unity  and  continuity. 
Its  purpose  to  impose  income  taxes  was  declared  in  its  own  constitu- 
tion, and  the  precise  nature  of  the  tax  and  the  measures  to  be  taken 
for  enforcing  it  were  plainly  set  forth  in  the  Act  of  1915;  and 
plaintiff  having  thereafter  proceeded,  with  notice  of  this  law,  to 
manage  the  property  and  conduct  the  business  out  of  which  pro- 
ceeded the  income  now  taxed,  the  State  did  not  exceed  its  power 
or  authority  in  treating  his  property  interests  and  his  business  as 
a  single  entity,  and  enforcing  payment  of  the  tax  by  the  imposition 
of  a  lien,  to  be  followed  by  execution  or  other  appropriate  process, 
upon  all  property  employed  in  the  business. 

No.  531.     Appeal  difimi.^sed. 
No.  580.     Decree  affirmed, 
Mr.  Justice  McEeynolds  dissents. 


SECT.       v.]  WISCONSIN     TltUST     CO.     V.     PHELPS.  259 


STATE  ex  rel.  WISCONSIN"  TRUST  CO.  v.  PHELPS. 

SUPKEME    COUKT    OK    WISCONSIN.       1920. 
[Reported  172  Wis.  147.] 

ViNJE,  J.  The  single  question  for  decision  on  this  appeal  is :  Did 
the  Wisconsin  Trust  Company  receive  the  income  of  the  trust  estate 
for  the  year  19 IT  within  the  meaning  of  suhdivision  3,  §  1087  m2, 
Stats.  liilT?  If  it  did,  then  under  the  provisions  of  suhdivision  5, 
§  1087  mlO,  its  duty  was  to  rejjort  it  for  taxation  and  pay  an  income 
tax  thereon.  A  solution  of  the  question  will  he  materially  aided 
by  a  reference  to  the  conditions  of  the  trust.  The  Wisconsin  Trust 
Company  was  made  a  trustee  with  the  provision  that,  if  it  refused 
to  act,  another  Wisconsin  trust  company  sliould  be  appointed  in  its 
stead.  The  funds  of  tiie  estate  were  to  be  invested  in  such  securities 
as  the  laws  of  the  State  of  Wisconsin  jjermit  trustees  to  invest  in, 
and  vacancies  in  the  trustees  were  to  bo  filled  by  the  county  court 
of  Milwaukee  county  or  its  successor,  and  of  course  the  trustees 
must  account  to  the  county  court  of  Milwaukee  county.  These 
provisions  indicate  quite  clearly  that  the  testator  intended^  the  trust 
to  be  administered  in  Wisconsin,  and  we  must  presume,  in  the  ab- 
sence of  clear  proof  to  the  contrary,  that  the  trustees  have  complied 
with  the  provisions  of  the  trust. 

It  appears  without  dispute  that  the  Wisconsin  Trust  Company 
has  at  all  times  been  in  the  physical  possession  of  the  assets  of  the 
trust  estate,  has  kept  all  the  accounts  thereof,  and  has  prepared  and 
filed  its  reports  to  the  county  court,  the  other  trustees  joining  there- 
in to  the  extent  of  certifying  that  they  believe  such  reports  to  be 
( orrect. 

Now,  let  us  see  just  Avhat  was  done  in  this  case  as  to  the  disputed 
income.  The  Wisconsin  Trust  Company  said  to  Gimbcl  Bros., 
You  may  pay  the  income  to  ]\Irs.  Belial  instead  of  to  me,  as  you 
request;  but  I  must  be  advised  of  all  the  transactions  between  you, 
so  that  I  can  correctly  keep  and  report  the  trust  account;  and 
proper  receipts  must  be  sent  me  by  Mrs.  Behal  to  protect  me  in  my 
account  to  the  county  court.  Pursuant  to  such  permission  and  direc- 
tion the  income  was  paid  by  Gimbel  Bros,  of  Philadelphia  to  Mrs. 
Behal,  presumably  was  a  matter  of  convenience,  since  Mrs.  Behal 
lived  in  Philadelphia.  The  Wisconsin  Trust  Company  credited  the 
income  account  of  the  estate  with  the  amount  paid  to  Mrs.  Behal, 
and  debited  the  same  account  with  the  amount  when  Mrs.  Behal's 
receipt  was  received,  and  it  accounted  to  the  county  court  for  the 
amount  so  credited  and  debited. 

In  view  of  the  provisions  of  the  trust,  the  method  of  conducting 
the  trust  estate,  as  well  as  the  legal  effect  of  the  mode  of  payment,  we 
conclude  that  the  transactions  constituted  in  law  a  payment  of  the 
income  to  the  Wisconsin  Trust  Company,  though  no  cash  was  re- 
ceived by  it.     To  hold  otherwise  were  to  permit  shadow  and  not  sub- 


2G0  TKAVIS    v.   YALE   &   TOWNB  MFG.    CO.  [cHAP.   II. 

stance  to  control  and  to  invite  evasions  of  the  paj^ment  of  income 
taxes  by  an  exchange  of  receipts  in  lieu  of  cash  or  its  equivalent. 

Since  we  reach  the  result  that  the  income  assessed  was  received 
by  the  Wisconsin  Trust  Company  within  the  meaning  of  subdivision 
3.  §  108T  m2,  the  case  falls  within  the  rule  of  State  ex  rel.  Wiscon- 
sin Trust  Co.  v.  Widule.  164  Wis.  56,  159  N.  W.  630,  and  not  with- 
in that  of  Bayfield  County  v.  Pishon,  162  Wis.  466,  156  N.  W.  463. 
A  number  of  collateral  questions  argued  are  rendered  immaterial 
by  the  result  reached  upon  the  main  facts  of  the  case  and  are  there- 
fore not  considered. 

Judgment  Affirmed. 

Kerwin,  J.  took  no  part.  Eschweiler  and  Eosenberry,  JJ., 
dissented. 


TEAVIS  V.  YALE  &  TOWNE  MFG.  CO. 
Supreme  Court  of  the  United  States.     1920. 

[Reported  252  U.  8.  60.] 

Pitney,  J.  This  was  a  suit  in  equity,  brought  in  the  District 
Court  by  appellee  against  appellant  as  Comptroller  of  the  State  of 
New  York  to  obtain  an  injunction  restraining  the  enforcement  of 
the  Income  Tax  Law  of  that  State  (c.  627,  Laws  1919)  as  against 
complainant,  upon  the  ground  of  its  repugnance  to  the  Constitution 
of  the  United  States  because  violating  the  interstate  commerce  clause, 
impairing  the  obligation  of  contracts,  depriving  citizens  of  the  States 
of  Connecticut  and  Xew  Jersey,  employed  by  complainant,  of  the 
privileges  and  immunities  enjoyed  by  citizens  of  the  state  of  New 
York,  depriving  complainant  and  its  non-resident  employees  of  their 
property  without  due  process  of  law,  and  denying  to  such  employees 
the  equal  protection  of  the  laws.  A  motion  to  dismiss  the  bill  — 
equivalent  to  a  demurrer  —  was  denied  upon  the  ground  that  the 
act  violated  §  2  of  Art.  IV  of  the  Constitution  by  discriminating 
against  non-residents  in  the  exemptions  allowed  from  taxable  in- 
come; an  answer  was  filed,  raising  no  question  of  fact;  in  due  course 
there  was  a  final  decree  in  favor  of  complainant;  and  defendant 
Took  an  appeal  to  this  court  under  §  238,  Judicial  Code. 

The  act  (§  351)  imposes  an  annual  tax  upon  every  resident  of 
the  State  with  respect  to  his  net  income  as  defined  in  the  act,  at 
specified  rates,  and  provides  also:  "A  like  tax  is  hereby  imposed 
and  shall  be  levied,  collected  and  paid  annually,  at  the  rates  specified 
in  this  section,  upon  and  with  respect  to  the  entire  net  income  as 
herein  defined,  except  as  hereinafter  provided,  from  all  property 
owned  and  from  every  business,  trade,  profession  or  occupation 
carried  on  in  this  state  by  natural  persons  not  residents  of  the  state." 
Section  359  defines  gross  income,  and  contains  this  paragraph :  "  3. 
In  the  case  of  taxpayers  other  than  residents,  gross  income  includes 
only  the  gross  income  from  sources  within  the  state,  but  shall  not 


SECT.      V 


,]  TKAVIS    C.    VAl.i.  ct   TOWXE   Mi-o.    (.*J.  201 


include  annuities,  interest  on  bank  deposits,  interest  on  bonds,  notes 
or  otlier  interest-bearing  obligations  or  dividends  from  corporations, 
except  to  tbe  extent  to  which  the  same  sluill  be  a  part  oi"  income 
from  any  business,  trade,  profession  or  occupation  carried  on  in 
this  state  subject  to  taxation  under  this  article."  In  §  360  provi- 
sion is  made  for  deducting  in  the  computation  of  net  income  ex- 
penses, taxes,  losses,  depreciation  charges,  etc.;  but,  by  paragraph 
11  of  the  same  section,  "In  the  case  of  a  taxpayer  other  than  a 
resident  of  the  state  the  deductions  allowed  in  this  section  shall 
be  allowed  only  if,  and  to  the  extent  that,  they  are  connected  with 
income  arising  from  sources  witliin  the  state;  ..."  By  §  362, 
certain  exemptions  are  allowed  to  any  resident  individual  taxpayer, 
viz.,  in  the  case  of  a  single  person  a  personal  exemption  of  $1,000, 
in  the  case  of  the  head  of  a  family  or  a  married  person  living  with 
husband  or  wife,  $2,000;  and  $200  additional  for  each  dependent 
person  under  18  years  of  age  or  mentally  or  physically  defective. 
The  next  section  reads  as  follows:  "§  363.  Credit  for  taxes  in 
case  of  taxpayers  other  than  residents  of  the  state.  Whenever  a 
taxpayer  other  than  a  resident  of  the  state  has  become  liable  to 
income  tax  to  the  state  or  country  where  he  resides  upon  his  net 
income  for  the  taxable  year,  derived  from  sources  within  this  state 
and  subject  to  taxation  under  this  article,  the  comptroller  shall 
credit  the  amount  of  income  tax  payable  by  him  under  this  article 
with  such  proportion  of  the  tax  so  payable  by  him  to  the  state  or 
country  where  he  resides  as  his  income  subject  to  taxation  under 
this  article  bears  to  his  entire  income  upon  which  the  tax  so  payable 
to  such  other  state  or  country  was  imposed;  provided  that  such 
credit  shall  be  allowed  only  if  the  laws  of  said  state  or  country 
grant  a  substantially  similar  credit  to  residents  of  this  state  subject 
to  income  tax  under  such  laws,"  Section  366  in  terras  requires 
that  every  "withholding  agent"  (including  employers)  shall  deduct 
and  withhold  2  per  centum  from  all  salaries,  wages,  etc.,  payable 
to  non-residents,  where  the  amount  paid  to  any  individual  equals 
or  exceeds  $1,000  in  the  year,  and  shall  pay  the  tax  to  the  Comp- 
troller. This  applies  to  a  resident  employee,  also,  unless  he  files  a 
certificate  showing  his  residence  address  within  the  State. 

Complainant,  a  Connecticut  corporation  doing  business  in  'New 
York  and  elsewhere,  has  employees  who  are  residents  some  of  Con- 
necticut others  of  New  Jersey  but  are  occupied  in  whole  or  in  part 
in  complainant's  business  in  New  York.  Many  of  them  have  annual 
salaries  or  fixed  comjiensation  exceeding  $1,000  per  year,  and  the 
amount  required  by  the  act  to  be  withheld  by  complainant  from 
the  salaries  of  such  non-resident  employees  is  in  excess  of  $3,000  per 
year.  Most  of  these  persons  are  engaged  under  term  contracts  call- 
ing for  stipulated  wages  or  salaries  for  a  specified  period. 

The  bill  sets  up  that  defendant,  as  Comptroller  of  the  State  of 
New  York,  threatens  to  enforce  the  provisions  of  the  statute  against 
complainant,  requires  it  to  deduct  and  withhold  from  the  salaries 
and  wages  pavable  to  its  employees  residing  in  Connecticut  or  New 
Jersey  and  citizens  of  those  States  respectively,  engaged  in  whole 


262  TRAVIS   V.   TALE   &  TOWNE   MFG.    CO.  [ciIAP.   II. 

or  ill  part  in  complainant's  business  in  the  State  of  New  York, 
the  taxes  provided  in  the  statute,  and  threatens  to  enforce  against 
complainant  the  penalties  provided  by  the  act  if  it  fails  to  do  so; 
that  the  act  is  unconstitutional  for  the  reasons  above  specified ;  and 
that  if  complainant  does  withhold  the  taxes  as  required  it  will  be 
subjected  to  many  actions  by  its  employees  for  reimbursement  of 
the  sums  so  withheld.  No  question  is  made  about  complainant's 
right  to  resort  to  equity  for  relief;  hence  we  come  at  once  to  the 
constitutional  questions. 

That  the  State  of  New  York  has  jurisdiction  to  impose  a  tax  of 
this  kind  upon  the  income  of  non-residents  arising  from  any  busi- 
ness, trade,  profession,  or  occupation  carried  on  within  its  borders, 
enforcing  payment  so  far  as  it  can  by  the  exercise  of  a  just  control 
over  persons' and  property  within  the  State,  as  by  garnishment  of 
credits  (of  which  the  withholding  provision  of  the  New  York  law 
is  the  practical  equivalent)  ;  and  that  such  a  tax,  so  enforced,  does 
not  violate  the  due  process  of  law  provision  of  the  Fourteenth 
Amendment,  is  settled  by  our  decision  in  ShafPer  v.  Carter,  this 
day  announced,  252  TJ.  S.  37,  involving  the  income  tax  law  of  the 
State  of  Oklahoma.  That  there  is  no  unconstitutional  discrimination 
against  citizens  of  other  States  in  confining  the  deduction  of  ex- 
penses, losses,  etc.,  in  the  case  of  non-resident  taxpayers,  to  such 
as  are  connected  with  income  arising  from  sources  within  the  taxing 
State,  likewise  is  settled  by  that  decision. 

It  is  not  here  asserted  that  the  tax  is  a  burden  upon  interstate 
commerce;  the  point  having  been  abandoned  in  this  court. 

The  contention'  that  an  unconstitutional  discrimination  against 
non-citizens  arises  out  of  the  provision  of  §  366  confining  the  with- 
holding at  source  to  the  income  of  non-residents  is  unsubstantial. 
That  provision  does  not  in  any  wise  increase  the  burden  of  the  tax 
upon  non-residents,  but  merely  recognizes  the  fact  that  as  to  them 
the  State  imposes  no  personal  liability,  and  hence  adopts  a  conven- 
ient substitute  for  it.  See  Bell's  Gap  R.  R.  Co.  v.  Pennsylvania, 
134  U.  S.  232,  239. 

Nor  has  complainant  on  its  own  account  any  just  ground  of  com- 
plaint by  reason  of  being  required  to  adjust  its  system  of  accounting 
and  paying  salaries  and  wages  to  the  extent  required  to  fulfill  the 
duty  of  deducting  and  withholding  the  tax.  This  cannot  be  deemed 
an  unreasonable  regulation  of  its  conduct  of  business  in  New  York. 
New  York,  Lake  Erie  &  Western  R.  R.  Co.  v.  Pennsylvania,  153 
U.  S.  628,  cited  in  behalf  of  complainant,  is  not  in  point.  In  that 
case  the  State  of  Pennsvlvania  granted  to  a  railroad  company  or- 
ganized under  the  laws  of  New  York  and  having  its  principal  place 
of  business  in  that  State  the  right  to  construct  a  portion  of  its 
road  through  Pennsvlvania,  upon  prescribed  terms  which  were  as- 
sented to  and  complied  with  by  the  company  and  were  deemed  to 
constitute  a  contract,  not  subject  to  impairment  or  modification 
through  subsequent  legislation  Ijy  the  State  of  Pennsylvania  except 
to  the  extent  of  establishing  reasonable  regulations  touching  the 
management  of  the  business  done  and  the  property  owned  by  the 


1 
P 


SECT,      v.]  TRAVIS   V.   YALE  &   TOWXE  MFG.    CO.  263 

company  in  that  State,  not  materially  interfering  with  or  ohstructing 
the  substantial  enjoyment  of  the  rights  previouf^ly  granted.  After- 
wards, Pennsylvania  undertook  by  statute  to  require  the  company, 
when  making  payment  of  coupons  upon  bonds  previously  issued  by 
it,  payable  at  its  otlice  in  the  City  of  New  York,  to  withhold  taxes 
assessed  by  the  State  of  Pennsylvania  against  residents  of  that  State 
because  of  ownership  of  such  bonds.  The  coupons  were  payable 
to  bearer,  and  when  they  were  presented  for  payment  it  was  prac- 
tically impossible  for  the  company  to  ascertain  who  were  the  real 
owners,  or  whether  they  were  owned  by  the  same  parties  who  owned 
the  bonds.  That  statute  was  held  to  be  an  unreasonable  regulation 
and  hence  to  amount  to  an  imiiaii-nient  of  the  obligation  of  the 
contract. 

In  the  case  at  bar  comidainant,  although  it  is  a  Connecticut 
corporation  and  has  its  principal  place  of  business  in  that  State, 
is  exercising  the  privilege  of  carrying  on  business  in  the  State  of 
New  York  without  any  contract  limiting  the  State's  power  of  regula- 
'  tion.  The  taxes  required  to  be  withheld  are  payable  with  respect 
to  that  portion  only  of  the  salaries  of  its  employees  which  is  earned 
wuthin  the  State  of  New  Y'ork.  It  might  pay  such  salaries,  or  this 
portion  of  them,  at  its  place  of  business  in  New  Y^'ork ;  and  the  fact 
that  it  nuiy  be  more  convenient  to  pay  them  in  Connecticut  is  not 
sufficient  to  deprive  the  State  of  New  Y'ork  of  the  right  to  impose 
such  a  regulation.  It  is  true  complainant  asserts  that  the  act  impairs 
the  obligation  of  contracts  between  it  and  its  employees;  but  there 
is  no  averment  that  any  such  contract  made  before  the  passage  of 
the  act  required  the  wages  or  salaries  to  be  paid  in  the  State  of  Con- 
necticut, or  contained  other  provisions  in  anywise  conflicting  with 
the  requirement  of  withholding. 

The  District  Court,  not  passing  upon  the  above  questions,  held 
that  the  act,  in  granting  to  residents  exemptions  denied  to  non-resi- 
dents, violated  the  provision  of  §  2  of  Art.  IV  of  the  Federal 
Constitution:  "The  citizens  of  each  State  shall  be  entitled  to  all 
Privileges  and  Immunities  of  Citizens  in  the  several  States";  and, 
notwithstanding  the  elaborate  and  ingenious  argument  submitted  by 
appellant  to  the  contrary,  we  are  constrained  to  affirm  the  ruling. 

The  purpose  of  the  provision  came  under  consideration  in  Paul 
V.  Virginia,  8  "Wall.  1G8,  180,  where  the  court,  speaking  by  Mr. 
Justice  Field,  said:  "It  was  undoubtedly  the  object  of  the  clause 
in  question  to  place  the  citizens  of  each  State  upon  the  same  footing 
with  citizens  of  other  States,  so  far  as  the  advantages  resulting 
from  citizenship  in  those  States  are  concerned.  It  relieves  them 
from  the  disabilities  of  alienage  in  other  States;  it  inhibits  dis- 
criminating legislation  against  them  by  other  States;  it  gives  them 
the  right  of  free  ingress  into  other  States,  and  egress  from  them; 
it  insures  to  them  in  other  States  the  same  freedom  possessed  by 
the  citizens  of  those  States  in  the  acquisition  and  enjoyment  of 
property  and  in  the  pursuit  of  happiness;  and  it  secures  to  them 
in  other  States  tlie  equal  jDrotection  of  their  laws.  It  has  been 
Justly   said   that   no  provision    m   the    Constitution    has    tended   so 


2(34:  TEAVis  r.  YALE  cfc  tow>;e  MFG.  CO.  [chap.  II. 

strongly  to  constitute  the  citizens  of  the  United  States  one  people 
as  this."  And  in  Ward  v.  Maryland,  13  Wall.  418,  holding  a  dis- 
criminatory state  tax  upon  non-resident  traders  to  be  void,  the  court, 
by  Mr.  Justice  Clifford,  said  (p.  430)  :  "Beyond  doubt  those  words 
[privileges  and  immunitiesj  are  words  of  very  comprehensive  mean- 
ing, but"  it  will  be  sufficient  to  say  that  the  clause  plainly  and  un- 
mistakably secures  and  protects  the  right  of  a  citizen  of  one  State 
to  pass  into  any  other  State  of  the  Union  for  the  purpose  of  engaging 
in  lawful  commerce,  trade,  or  business  without  molestation;  to 
acquire  personal  property;  to  take  and  hold  real  estate;  to  maintain 
actions  in  the  courts  of  the  State;  and  to  be  exempt  from  any  higher 
taxes  or  excises  than  are  imposed  by  the  State  upon  its  own  citizens." 

Of  course  the  terms  "resident"  and  "citizen"  are  not  synony- 
mous, and  in  some  cases  the  distinction  is  important  (La  Tourette 
V.  McMaster,  248  U.  S.  465,  470) ;  but  a  general  taxing  scheme 
6uch  as  the  one  under  consideration,  if  it  discriminates  against  all 
non-residents,  has  the  necessary  effect  of  including  in  the  discrimina- 
tion those  Avho  are  citizens  of  other  States;  and,  if  there  be  no 
reasonable  ground  for  the  diversity  of  treatment,  it  abridges  the 
privileges  and  immunities  to  which  such  citizens  are  entitled.  In 
Blake  v.  McClung,  172  U.  S.  239,  247;  176  U.  S.  59,  67,  the  court 
held  that  a  statute  of  Tennessee,  declaring  the  terms  upon  which  a 
foreign  corporation  might  carry  on  business  and  hold  property 
in  that  State,  which  gave  to  its  creditors  residing  in  Tennessee 
priority  over  all  creditors  residing  elsewhere,  without  special  ref- 
erence to  whether  they  were  citizens  or  not,  must  be  regarded  as 
contravening  the  "  privileges  and  immunities  "  clause. 

The  nature  and  effect  of  the  crucial  discrimination  in  the  present 
case  are  manifest.  Section  362,  in  the  case  of  residents,  exempts 
from  taxation  $1,000  of  the  income  of  a  single  person,  $2,000  in 
the  case  of  a  married  person,  and  $200  additional  for  each  dependent. 
A  non-resident  taxpayer  has  no  similar  exemption;  but  by  §  363, 
if  liable  to  an  income  tax  in  his  own  State,  including  income  derived 
from  sources  within  New  York  and  subject  to  taxation  under  this 
act,  he  is  entitled  to  a  credit  upon  the  income  tax  otherwise  payable 
to  the  State  of  New  York  by  the  same  proportion  of  the  tax  payable 
to  the  State  of  his  residence  as  his  income  subject  to  taxation  by 
the  New  York  Act  bears  to  his  entire  income  taxed  in  his  own 
State;  "provided  that  such  credit  shall  be  allowed  only  if  the  laws 
of  said  state  .  .  .  grant  a  substantially  similar  credit  to  residents 
of  this  state  subject  to  income  tax  under  such  laws." ' 

*  Reading  the  statute  literally,  there  would  appear  to  he  an  additional 
discrimination  a<<ainst  non-residents  in  that  under  §  .3B6  the  "  withholding 
agent"  (employer)  is  required  to  withhold  2  per  cent  from  all  salaries, 
wages,  etc.,  payable  to  any  individual  non-resident  amounting  to  $1,000  or 
mare  in  the  year;  whereas  by  §  351  the  tax  upon  residents  (indeed,  upon 
non-residents  likewise,  so  far  as  this  section  goes),  is  only  one  per  centum 
npcn  the  first  $10,000  of  net  income.  It  is  siiid,  liowever,  that  the  discrepancy 
arose  through  an  amendment  made  to  §  ST)!  while  the  bill  was  pending  in 
the  legislature,  no  corresponding  amendment  having  been  made  in  §  366. 
In  view  of  this,  and  taking  the  vi^hole  of  the  act  together,  the  Attorney 
General  has  advised  the  Comptroller  that   §  *366   requires  withholding  of 


SECT. 


,1  TKAVIS  V.   YALE  &  TOWXE  MFO.    CO.  2G5 


In  the  concrete,  the  particular  incidence  of  the  discrimination 
is  upon  citizens  of  Connecticut  and  New  Jersey,  neither  of  wiiich 
States  has  an  income  tax  law.  A  considerable  number  of  complain- 
ant's employees,  residents  and  citizens  of  one  or  the  other  of  those 
States,  spend  their  working  time  at  its  office  in  the  City  of  Xew 
York,  and  earn  their  salaries  there.  The  case  is  typical;  it  being 
a  matter  of  common  knowledge  that  from  necessity,  due  to  the 
geographical  situation  of  that  city,  in  close  proximity  to  the  neigh- 
boring States,  many  thousands  of  men  and  women,  residents  and 
citizens  of  those  States,  go  daily  from  their  homes  to  the  city  and 
earn  their  livelihood  there.  They  pursue  their  several  occupations 
side  by  side  with  residents  of  the  State  of  New  York  —  in  effect 
competing  with  them  as  to  wages,  salaries,  and  other  terms  of  em- 
ployment. Whether  they  must  pay  a  tax  upon  the  first  $1,000  or 
$2,000  of  income,  while  their  associates  and  competitors  who  reside 
in  New  York  do  not,  makes  a  substantial  difference.  Under  the 
circumstances  as  disclosed,  we  are  unable  to  find  adequate  ground 
for  the  discrimination,  and  are  constrained  to  hold  that  it  is  an 
unwarranted  denial  to  the  citizens  of  Connecticut  and  New  Jersey 
of  the  privileges  and  immunities  enjoyed  by  citizens  of  New  York. 
This  is  not  a  case  of  occasional  or  accidental  inequality  due  to 
circumstances  personal  to  the  taxpayer  (see  iVmoskeag  Savings  Bank 
V.  Purdy,  231  U.  S.  373,  393-394;  Maxwell  v.  Bugbee,  250  U.  S. 
525,  5-43)  ;  but  a  general  rule,  operating  to  the  disadvantage  of  all 
non-residents  including  those  who  are  citizens  of  the  neighboring 
States,  and  favoring  all  residents  including  those  who  are  citizens 
of  the  taxing  State. 

It  cannot  be  deemed  to  be  counterbalanced  by  the  provision  of 
par.  3  of  §  359  which  excludes  from  the  income  of  non-resident 
taxpayers  "  annuities,  interest  on  bank  deposits,  interest  on  bonds, 
notes  or  other  interest-bearing  obligations  or  dividends  from  corpora- 
tions, except  to  tlie  extent  to  which  the  same  shall  be  a  part  of 
income  from  any  business,  trade,  profession  or  occupation  carried 
on  in  this  state  subject  to  taxation  under  this  article."  This  provi- 
sion is  not  so  conditioned  as  probably  to  benefit  non-residents  to 
a  degree  corresponding  to  the  discrimination  against  them;  it  seems 
to  have  been  designed  rather  (as  is  avowed  in  appellant's  brief)  to 
preserve  the  preeminence  of  New  York  City  as  a  financial  center. 

Nor  can  the  discrimination  be  upheld,  as  is  attempted  to  be  done, 
upon  the  theory  that  non-residents  have  untaxed  income  derived 
from  sources  in  their  home  Stiites  or  elsewhere  outside  of  the  State 
of  New  York,  corresponding  to  the  amount  upon  which  residents 
of  that  State  are  exempt  from  taxation  under  this  act.  The  dis- 
crimination is  not  conditioned  upon  the  existence  of  such  untaxed 
income;  and  it  would  be  rash  to  assume  that  non-residents  taxable 
in  New  York  under  this  law,  as  a  class,  are  receiving  additional 
income  from  outside  sources  equivalent  to  the  amount  of  the  exemp- 
tions that  are  accorded  to  citizens  of  New  York  and  denied  to  them, 
only  one  per  centum  upon  the  first  $10,000  of  income.  And  the  Comptroller 
has  issued  regulations  to  that  effect.  Hence  we  treat  the  discrepancy  as 
if  it  did  not  exist. 


266  WILLIAMS   V.    SINGER.  [ciIAP.    II. 

In  the  brief  submitted  b}'-  the  Attorney  General  of  New  York  in 
behalf  of  appellant,  it  is  said  that  the  framers  of  the  act,  in  embody- 
ing in  it  the  provision  for  unequal  treatment  of  the  residents  of 
other  States  with  respect  to  the  exemptions,  looked  fonvard  to  the 
speedy  adoption  of  an  income  tax  by  the  adjoining  States;  in  which 
event,  injustice  to  their  citizens  on  the  part  of  New  York  could 
be  avoided  by  providing  similar  exemptions  similarly  conditioned. 
This,  however,  is  wholly  speculative;  New  York  has  no  authority 
to  legislate  for  the  adjoining  States;  and  we  must  pass  upon  its 
statute  with  respect  to  its  effect  and  operation  in  the  existing  situa- 
tion. But  besides,  in  view  of  the  provisions  of  the  Constitution 
of  the  United  States,  a  discrimination  by  the  State  of  New  York 
against  the  citizens  of  adjoining  States  would  not  be  cured  were 
those  States  to  establish  like  discriminations  against  citizens  of  the 
State  of  New  York.  A  State  may  not  barter  away  the  right,  con- 
ferred upon  its  citizens  by  the  Constitution  of  the  United  States, 
to  enjoy  the  privileges  and  immunities  of  citizens  when  they  go 
into  other  States.  Nor  can  discrimination  be  corrected  by  retalia- 
tion ;  to  prevent  this  was  one  of  the  chief  ends  sought  to  be  accom- 
plished by  the  adoption  of  the  Constitution. 

Decree  affirmed, 

Mr.  Justice  McRetnolds  concurs  in  the  result. 


WILLIAMS  V.  SINGEE. 
House  of  Lords.     1920. 

[Reported  1921.  App.  Cas.   65.] 

Viscount  Cave.  My  Lords,  the  question  raised  in  these  appeals 
is  whether  income  from  foreign  investments  which  is  received 
abroad  by  a  person  not  domiciled  in  this  country  is  chargeable  with 
income  tax  under  the  Income  Tax  Acts  by  reason  of  the  fact  that 
the  investments  stand  in  the  names  of  trustees  wdio  are  domiciled 
here.  As  the  point  raised  in  both  cases  is  the  same,  the  appeals 
have  been  heard  together. 

In  Williams  v.  Singer  the  respondents  are  the  trustees  of  a 
settlement  under  which  the  Princesse  de  Polignac  is  the  bene- 
ficial tenant  for  life  in  possession.  The  settlement  is  in  English 
form,  and  the  trustees  are  all  domiciled  and  resident  in  the 
United  Kingdom;  but  the  Princess  (who  is  a  widow)  is  a  French 
subject  by  marriage,  and  is  domiciled  and  resident  abroad. 
The  settled  fund,  so  far  as  it  comes  into  question  in  these  pro- 
ceedings, consists  of  certain  foreign  investments  of  considerable 
value,  and  under  orders  signed  by  the  trustees  the  whole  income 
from  these  investments  is  paid  to  the  account  of  the  Princess  at 
a  bank  in  New  York,  no  part  thereof  being  remitted  to  this  country. 
In    these    circumstances    the    Additional    Commissioners    for    the 


SECT.       v.]  WILI.IAMS     V.     SINGEE.  267 

Division  of  New  Sarum  in  the  county  of  Wilts  (in  which  one  of 
the  respondents  resides)  made  two  assessments  upon  tlie  respon- 
dents for  tiie  year  ended  April  5,  l!)l(i  —  namely,  an  assessment  of 
60,000/.  in  respect  of  foreign  possessions  and  an  assessment  of  oOOO/. 
in  respect  of  foreign  securities  —  these  sums  representing  ap- 
proximately the  income  from  the  foreign  investments  comprised 
in  the  settlement  as  above  mentioned.  The  respondents  objected 
to  the  assessments  and  api)ealed  to  the  Special  Commissioners 
who,  after  argument,  discharged  them ;  and  on  a  case  being  stated 
for  the  opinion  of  the  King's  Bench  Division  Sankey,  J.  confirmed 
the  decision  of  the  Special  Commissioners.  An  appeal  by  the 
Surveyor  of  Taxes  to  the  Court  of  Appeal  was  dismissed,  and  the 
Surveyor  has  appealed  to  this  House. 

The  facts  in  Pool  v.  Koyal  J^].\change  Assurance  are  in  all  ma- 
terial particulars  (with  one  exception)  similar  to  those  in  the 
other  case.  In  this  case  the  respondent  company,  which  has  its 
principal  place  of  business  in  the  City  of  London,  is  the  trustee 
of  the  will  of  Mr.  J.  P.  Mellor  (deceased)  ;  and  the  beneficial 
tenant  for  life  under  the  will  is  Mrs.  H.  P.  ^lunthe,  a  Swedish 
subject  domiciled  abroad.  The  will  comprises  foreign  invest- 
ments; and  the  whole  income  from  such  investnients  is  paid  directly 
to  Mrs.  ]\Iunthe  abroad,  no  part  of  such  income  being  remitted  to 
this  country.  The  District  Commissioners  of  Taxes  for  the  City  of 
London  made  assessments  upon  the  respondent  company  in  respect 
of  foreign  possessions  of  2015/.  for  the  year  ended  April  5,  1915,  and 
2018/.  for  the  year  ended  April  5,  191G,  these  sums  representing  the 
income  of  the  foreign  investments  above  referred  to.  But  these 
assessTuents  differed  from  those  which  are  in  question  in  Williams 
V.  Singer  in  one  respect — namely,  tluit  instead  of  being  made  (as 
in  that  case)  upon  the  trustees  by  name  without  reference  to  any 
trust,  they  were  made  upon  the  respondent  company  "as  trustees 
under  the  will  of  J.  P.  Mellor  deceased  for  beneficiaiy  Mrs.  H.  P. 
Munthe."  The  respondent  company  appealed  to  the  Special  Com- 
missioners, who  discharged  the  assessments ;  and  this  decision  also 
has  been  atnrined  by  Sankey  J.  and  the  Court  of  Ajipcal  and  is  the 
subject  of  appeal  to  this  House. 

My  Lords,  it  was  decided  in  Colquhoun  r.  Brooks,  19  Q.  B.  D.  418, 
that  the  tax  imposed  by  the  Income  Tax  Acts,  1842  and  18o;5  (Sch.  D, 
Cases  4  and  5),  upon  the  income  from  foreign  securities  and  posses- 
sions was  leviable  upon  so  much  only  of  that  income  as  was  re- 
mitted to  the  United  Kingdom.  But  that  limitation  was  to  some 
extent  abrogated  by  s.  5  of  the  Finance  Act,  1914,  which  (so  far 
as  material  in  this  appeal)  is  as  follows:  "Income  tax  in  respect 
of  income  ari^^ing  from  securities,  stocks,  shares,  or  rents  in  any 
place  out  of  the  United  Kingdom  shall,  notwithstanding  anything 
m  the  rules  under  the  fourth  and  fifth  case  in  section  one  hundred 
of  the  Income  Tax  Act,  1842,  be  computed  on  the  full  amount  of 
the  income,  whether  the  income  has  been  or  will  be  received  in 
the  United  Kingdom  or  not  ....  and  the  provisions  of  the 
Income  Tax  Acts   (including  those  relating  to  returns)    shall  ap- 


268  WILLIAMS  V.    SINGER.  [cHAP.    II. 

ply  accordingl}',  ....  Provided  that  this  section  shall  not  apply 
in  the  case  of  a  person  who  satisfies  the  Commissioners  of  Inland 
Revenue  that  he  is  not  domiciled  in  the  United  Kingdom,  or  that, 
being  a  British  subject,  he  is  not  ordinarily  resident  in  the  United 
Kingdom." 

It  is  obvious  that,  having  regard  to  the  proviso  to  the  above 
section,  the  Princesse  de  Polignac  and  ]\Irs.  Munthe,  who  are 
domiciled  abroad,  could  not  have  been  assessed  to  income  tax 
in  respect  of  the  foreign  income  above  referred  to.  But  the 
revenue  authorities  contend  that  they  are  entitled  to  levy  tax  upon 
that  income  by  means  of  assessments  upon  the  trustees,  who  are 
domiciled  in  this  country.  If  this  contention  is  upheld,  the  trustees 
will  of  course  be  entitled  to  retain  the  tax  so  paid  out  of  the  trust 
income  payable  to  the  beneficial  life  tenants,  who  will  thus  have  to 
bear  the  burden  of  the  tax  from  which  the  proviso  appears  to  re- 
liew  them ;  but  the  apjiellants  contend  that  this  is  the  effect  of  the 
statutes.  The  question  to  be  determined  is  whether  they  have 
that  effect. 

In  support  of  the  above  contention  counsel  for  the  appellants 
relied  principally  upon  the  language  of  Sch.  D  to  the  Income 
Tax  Act,  1853,  which  provides  that  the  duties  thereby  imposed 
are  to  be  deemed  to  be  granted  and  made  payable  "  for  and  in 
respect  of  the  annual  profits  or  gains  arising  or  accruing  to  any 
person  residing  in  the  United  Kingdom  from  any  kind  of  prop- 
erty whatever,  whether  situate  in  the  United  Kingdom  or  else- 
where," and  upon  the  first  general  rule  in  s.  100  of  the  Income 
Tax  Act,  1842,  which  provides  that  the  duties  upon  profits  imposed 
by  Sch.  D  are  to  be  charged  on  and  paid  by  the  persons  "  receiving 
or  entitled  unto"  such  profits;  and  they  contended  that  as  the 
income  in  question  in  the  cases  under  appeal  "  accrued "  to  the 
trustees  as  the  legal  holders  of  the  investments,  and  the  trustees 
are  the  persons  legally  "  entitled  "  to  receive  it,  they  are  the  persons 
chargeable  under  the  Act.  Indeed,  I  understood  Mr.  Cunliffe  to  go 
so  far  as  to  say  that,  when  funds  are  vested  in  trustees,  the 
revenue  authorities  are  entitled  to  look  to  those  trustees  for  the 
tax,  and  are  neither  bound  nor  entitled  to  look  l)eyond  the  legal 
ownership. 

My  Lords,  I  think  it  clear  that  such  a  proposition  cannot  be 
maintained.  It  is  contrary  to  the  express  words  of  s.  42  of  the 
Income  Tax  Act,  1842,  which  provides  that  no  trustee  who  shall 
have  authorized  the  receipt  of  the  profits  arising  from  trust  prop- 
erty by  the  person  entitled  thereto,  and  who  shall  have  made  a 
return  of  the  name  and  residence  of  such  person  in  manner  required 
by  the  Act,  shall  be  required  to  do  any  other  act  for  the  purpose  of 
assessing  such  person.  And,  apart  from  this  provision,  a  decision 
that  in  the  case  of  trust  property  the  trustee  alone  is  to  be  looked  | 

to  would  lead  to  strange  results.  If  the  legal  ownership  alone 
is  to  be  considered,  a  beneficial  owner  in  moderate  circumstances  \ 

may  lose  his  right  to  exemption  or  abatement  by  reason  of  the  fact 
that  he  has  wealthy  trustees,  or  a  wealtliy  beneficiary  may  escape 

I 


SECT.      v.]  WILLIAMS    V.    SINGER.  269 

super  tax  by  appointing  a  number  of  trustees  in  less  affluent  cir- 
cumstances. Indeed,  if  the  Act  is  to  be  construed  as  counsel  for 
the  a})i)el]ants  suggests,  a  beneficiary  domiciled  in  this  country  may 
altogether  avoid  the  tax  on  this  foreign  income  spent  abroad  by  the 
simple  expedient  of  appointing  one  or  more  foreign  trustees. 
Accordingly  I  put  this  contention  aside. 

On  the  other  hand,  I  do  not  think  it  would  be  correct  to  say 
that,  whenever  property  is  hekl  in  trust,  the  person  liable  to 
be  taxed  is  the  beneficiary  and  not  the  trustee.  Sect.  41  of  the 
Income  Tax  Act,  184'^,  renders  the  trustee,  guardian  or  other  per- 
son who  has  the  control  of  the  property  of  an  infant,  married 
woman,  or  lunatic  chargeable  to  income  tax  in  the  place  of  such 
infant,  married  woman,  or  lunatic;  and  the  same  section  declares 
that  any  person  not  resident  in  Great  Britain  shall  be  chargeable 
in  the  name  of  his  trustee  or  agent  having  the  receipt  of  any  profits 
or  gains.  Sect.  108  of  the  same  Act,  which  deals  with  tJie  profits 
or  gains  arising  from  foreign  possessions  or  foreign  securities, 
provides  that  in  default  of  the  owner  or  proprietor  being  charged, 
the  trustee,  agent  or  receiver  of  such  profits  or  gains  shall  be 
charged  for  the  same.  And  even  apart  from  these  special  pro- 
visions I  am  not  prepared  to  deny  that  there  are  many  cases  in 
which  a  trustee  in  receipt  of  trust  income  may  be  chargeable  with 
the  tax  upon  such  income.  For  instance,  a  trustee  carr\-ing  on 
a  trade  for  the  benefit  of  creditors  or  beneficiaries,  a  trustee  for 
charitable  purposes,  or  a  trustee  who  is  under  an  obligation  to 
apply  the  trust  income  in  satisfaction  of  charges  or  to  accumulate 
it  for  future  distribution,  appears  to  come  within  this  category; 
and  other  similar  cases  may  be  imagined. 

The  fact  is  that  if  the  Income  Tax  Acts  arc  examined,  it  will 
be  found  that  the  person  charged  with  the  tax  is  neither  the 
trustee  nor  the  beneficiary  as  such,  but  the  person  in  actual  re- 
ceipt and  control  of  the  income  which  it  is  sought  to  reach.  The 
object  of  the  Acts  is  to  secure  for  the  State  a  proportion  of 
the  profits  chargeable,  and  this  end  is  attained  (speaking  generally) 
by  the  simple  and  effective  expedient  of  taxing  the  profits  where 
they  are  found.  If  the  beneficiary  receives  them  he  is  liable  to 
be  assessed  upon  them.  If  the  trustee  receives  and  controls  them, 
he  is  primarily  so  liable.  If  they  are  under  the  control  of  a  guar- 
dian or  committee  for  a  person  not  sui  juris  or  of  an  agent  or 
receiver  for  persons  resident  abroad,  they  are  taxed  in  his  hands. 
But  in  cases  where  a  trustee  or  agent  is  made  chargeable  with  the 
tax  the  statutes  recognize  the  fact  that  he  is  a  trustee  or  agent  for 
others  and  he  is  taxed  on  behalf  of  and  as  representing  his  bene- 
ficiaries or  principals.  Tliis  is  made  clear  by  the  language  of 
many  sections  of  the  Act  of  1842.  For  instance,  s.  41  provides 
that  a  person  not  resident  in  Great  Britain  shall  be  chargeable 
"in  the  name  of"  his  trustee  or  agent.  Sect.  44  refers  to  the 
trustee  or  agent  of  any  person  as  being  assessed  "in  respect  of" 
such  person,  and  gives  him  a  right  to  retain  the  tax  out  of  anv 
money  of  such  person  coming  to  his  hands.     Sect.  51,  under  which 


270  MAGUIBE    V.     TEEFRY.  [cHAP.    II. 

trui;tees  and  others  are  bound  to  make  returns,  refers  to  the  event 
of  the  beneficiary  being  charged  either  "  in  the  name  of  "  the  trustee 
or  other  person  making  the  return,  or  in  his  own  name.  Sect.  53 
refers  to  the  trustee  or  agent  as  being  charged  "  on  account "  of 
the  beneficiar}' ;  and  similar  expressions  are  found  in  other  sections. 
In  short,  the  intention  of  the  Acts  appears  to  be  that  where  a 
beneficiary  is  in  possession  and  control  of  the  trust  income  and 
is  sui  juris,  he  is  the  person  to  be  taxed;  and  that  while  a  trustee 
may  in  certain  cases  be  charged  with  the  tax,  he  is  in  all  such  cases 
to  be  treated  as  charged  on  behalf  or  in  respect  of  his  beneficiaries, 
who  will  accordingly  be  entitled  to  any  exemption  or  abatement 
Avhich  the  Acts  allow. 

Applying  the  above  conclusions  to  the  present  case,  it  follows 
in  my  opinion,  first,  that  the  respondent  trustees,  who  have 
directed  the  trust  income  to  be  paid  to  the  beneficial  tenants 
for  life  and  themselves  receive  no  part  of  it,  are  not  assessable 
to  tax  in  respect  of  such  income;  and  secondly,  that  even  if  they 
were  so  assessable,  they  would  be  assessable  as  trustees  on  behalf 
of  the  life  tenants,  who  would  accordingly  be  entitled  to  the  benefit 
of  the  exemption  contained  in  the  proviso  in  s.  5  of  the  Finance 
Act,  1914.  The  assessments  in  question  in  Pool  v.  Royal  Exchange 
Assurance  Co.,  which  were  made  upon  the  respondents  as  trustees 
for  the  beneficiary  Mrs.  Munthe,  and  were  probably  so  made  with 
reference  to  ss.  41  and  108  of  the  Act  of  1843,  support  this  view 
of  the  Acts ;  but  it  does  not  appear  to  me  that  the  absence  of  similar 
words  in  the  assessments  in  "Williams  v.  Singer  makes  any  difference 
in  the  result. 

The  above  conclusion  is  supported  by  the  consideration  that 
under  the  express  words  of  s.  5  of  the  Finance  Act,  1914,  a  per- 
son therel)y  charged  with  tax  is  authorized  to  deduct  from  the 
taxable  income  "any  annuity  or  other  annual  payment  payable 
out  of  tlie  income  to  a  person  not  resident  in  the  United  Kingdom." 
It  is  diflficult  to  believe  that  it  was  tlie  intention  of  the  Le^gislature, 
while  exempting  from  the  tax  any  definite  part  of  the  income  which 
is  payable  to  a  person  abroad,  to  impose  the  tax  upon  tlie  whole 
income  when  so  payable. 

For  the  above  reasons  I  think  that  the  contention  of  the  ap- 
pellants fails,  and  accordingly  that  these  appeals  should  be 
dismissed  with  costs. 


MAGUIRE   V.   TREFRY. 
Supreme  Court  of  tiie  TJxited  States.     1920, 

[Reported  2r,.3   U.   S.    12.] 

Day,  J.  Massachusetts  has  a  statute  providing  for  a  tax  upon 
incomes  (Gen.  Acts  Mass.  1910,  c.  269).  In  the  act  imposing 
the  tax  it  is  provided:  "If  an  inhabitant  of  this  commonwealth  re- 


SECT,     v.]  MAGUIIIE    V.    TREFIIY.  271 

ceives  income  from  one  or  more  executors,  administrators  or  trustees, 
none  of  wJiom  is  an  inhabitant  of  tliis  commonwealth  or  has  de- 
rived his  appointment  from  a  court  of  this  commonwealth,  such 
income  shall  be  subject  to  the  taxes  assessed  b}-  this  act,  according 
to  the  nature  of  the  income  received  by  the  executors,  adminis- 
trators or  trustees." 

The  plaintiir  in  error  is  a  resident  of  the  State  of  Massachusetts, 
and  was  taxed  u\)(m  income  from  a  trust  created  by  the  will  of  one 
Matilda  P.  MacArtliur  formerly  of  Philadelphia.  The  plaintiff 
in  error  under  the  will  of  the  decedent  was  the  beneficiary  of  a 
trust  thereby  created.  The  securities  were  held  in  trust  by  the 
Girard  Trust  ('omj)any  of  riiiladeiphia.  Those  which  were  di- 
rectly taxable  to  the  trustee  were  held  exempt  from  taxation  in 
Massachusetts  under  the  terms  of  the  statute  of  that  State.  The 
securities  the  income  from  which  was  held  taxable  in  .Massachusetts 
consisted  of  the  bonds  of  three  corporations  and  certain  certificates 
of  the  Southern  Jiailway  Equipment  Trust.  These  securities  were 
held  in  the  possession  of  the  trustee  in  Philadelphia.  The  trust 
was  being  administered  under  the  laws  of  Pennsylvania.  The 
Supreme  Judicial  Court  of  ]\l{issachusetts  held  the  tax  to  be  valid. 
230  Massachusetts,  503. 

Of  the  nature  of  the  tax  the  Chief  Justice  of  Massachusetts, 
speaking  for  tlie  Supreme  Judicial  Court,  said:  "The  income  tax 
is  measured  by  reference  to  the  riches  of  the  person  taxed  actually 
made  available  to  liim  for  valuable  use  during  a  given  period.  It 
establishes  a  basis  of  taxation  directly  proportioned  to  ability  to 
bear  the  burden.  It  is  founded  upon  the  protection  afforded  to 
the  recipient  of  the  income  by  the  government  of  the  Common- 
wealth of  liis  residence  in  his  person,  in  his  riglit  to  receive  the 
income  and  in  his  enjoyment  of  the  income  when  in  his  possession. 
That  government  provides  for  him  all  the  advantages  of  living  in 
safety  and  in  freedom  and  of  being  protected  by'  law.  It  gives 
security  to  life,  liberty  and  the  other  ])rivileges  of  dwelling  in  a 
civilized  community.  It  exacts  in  return  a  contribution  to  the 
support  of  that  government  m'easured  by  and  based  upon  the  in- 
come, in  the  fruition  of  which  it  defends  him  from  unjust  inter- 
ference. It  is  true  of  the  present  tax,  as  was  said  by  Chief  Justice 
Shaw  in  Bates  v.  Boston,  5  Cush.  93,  at  page  99,  'The  assessment 
does  not  touch  the  fund,  or  control  it;  nor  does  it  interfere  with 
the  trustee  in  the  exercise  of  his  proper  duties;  nor  call  him,  nor 
hold  him,  to  any  accountability.  It  affects  only  the  income,  after 
it  has  been  paid  by  the  trustee'  to  the  beneficiary." 

We  see  no  reason  to  doubt  the  correctness  of  this  view  of  the 
nature  and  efTect  of  the  Massachusetts  statute,  and  shall  accept  it 
for  the  purpose  of  considering  the  federal  question  before  us, 
which  arises  ^rom  the  contention  of  the  plaintiff  in  error  that  the 
imposition  of  the  tax  was  a  denial  of  due  process  of  law  within  the 
protection  of  the  Fourteenth  Amendment  to  the  Federal  Con- 
stitution, because,  it  is  alleged,  the  effect  of  the  statute  is  to  subject 
property  to  taxation  which  is  beyond  the  limits  and  outside  the 


272  MAGUIRE  V.    TREFKY.  [CHAP.  II. 

jurisdiction  of  the  State,  To  support  this  contention  the  plaintiff 
in  error  relies  primarily  upon  the  decision  of  this  court  in  Union 
Eefrigerator  Transit  Co  v.  Kentucky,  199  U.  S.  194.  In  that  case 
we  held  that  tangible,  personal  property,  permanently  located  in 
another  State  than  that  of  the  owner,  where  it  had  acquired  a  situs, 
and  was  taxed  irrespective  of  the  domicile  of  the  owner,  —  was 
beyond  tJie  taxing  power  of  the  State,  and  that  an  attempt  to  tax 
such  property  at  the  owner's  domicile  was  a  denial  of  due  process 
of  law  under  the  Fourteenth  Amendment.  This  ruling  was  made 
with  reference  to  cars  of  the  Transit  Company  permanently  em- 
ployed outside  the  State  of  the  owner's  residence.  In  that  case 
this  court  in  the  opinion  of  Mr.  Justice  Brown,  speaking  for  it, 
expressly  said  that  the  taxation  of  intangible  personal  property 
was  not  involved,     (199  U.  S.  211.) 

It  is  true  that  in  some  instances  we  have  held  that  bonds  and  bills 
and  notes  although  evidences  of  debt  have  come  to  be  regarded  as 
property  which  may  acquire  a  taxable  situs  at  the  place  where 
they  are  kept,  which  may  be  elsewhere  than  at  the  domicile  of  the 
owner.  These  cases  rest  upon  the  principle  that  such  instruments 
are  more  than  mere  evidences  of  debt,  and  may  be  taxed  in  the 
jurisdiction  where  located,  and  where  they  receive  the  protection  of 
local  law  and  authority.  Blackstone  v.  Miller,  188  U.  S.  189,  206. 
People  ex  rel,  Jefferson  v.  Smith,  88  N.  Y.  576,  585.  At  the  last 
term  we  held  in  DeGanay  v.  Lederer,  250  U.  S.  376,  that  stocks 
and  bonds  issued  by  domestic  corporations,  and  mortgages  secured 
on  domestic  real  estate,  although  owned  by  an  alien  non-resident, 
but  in  the  hands  of  an  agent  in  this  country  with  authority  to  deal 
with  them,  were  subject  to  the  Income  Tax  Law  of  October  3, 
1913,  38  Stat.  166. 

In  the  present  case  we  are  not  dealing  with  the  right  to  tax 
securities  which  have  acquired  a  local  situs,  but  are  concerned  with 
the  right  of  the  State  to  tax  the  beneficiary  of  a  trust  at  her  resi- 
dence, although  the  trust  itself  may  be  created  and  administered 
under  the  laws  of  another  State. 

In  Fidelity  &  Columbia  Trust  Company  v.  Louisville,  245  U.  S. 
54,  we  held  that  a  bank  deposit  of  a  resident  of  Kentucky  in 
the  Bank  of  another  State,  where  it  was  taxed,  might  be  taxed  as 
a  credit  belonging  to  the  resident  of  Kentucky.  In  that  case  Union 
Eefrigerator  Transit  Co.  v.  Kentucky,  supra,  was  distinguished, 
and  the  principle  was  affirmed  that  the  State  of  the  owner's  domi- 
cile might  tax  the  credits  of  a  resident  although  evidenced  by  debts 
due  from  residents  of  another  State.  This  is  the  general  rule  rec- 
ognized in  the  maxim  "  mohiJia  sequuniur  personam,"  and  justify- 
ing, except  under  exceptional  circumstances,  the  taxation  of  credits 
and  beneficial  interests  in  property  at  the  domicile  of  the  owner. 
"We  have  pointed  out  in  other  decisions  that  the  principle  of  that 
maxim  is  not  of  universal  application  and  may  yield  to  the  ex- 
igencies of  particular  situations.  But  we  think  it  is  applicable 
here. 

It  is  true  that  the  legal  title  of  the  property  is  held  by  the  trustee 


SECT. 


.]  MAGUIRE    V.    TREFRY.  273 


in  Pennsylvania.  But  it  is  so  held  for  the  benefit  of  the  beneficiar}' 
of  the  trust,  and  such  beneficiary  has  an  equitable  right,  title 
and  interest  distinct  from  its  legal  ownership.  "  The  legal  owner 
holds  the  direct  and  absolute  dominion  over  the  property  in  the  view 
of  the  law ;  but  the  income,  profits,  or  benefits  thereof  in  his  hands, 
belong  wholly,  or  in  part,  to  others."  2  Story's  Equity,  11th  ed., 
§  9G4.  It  is  this  property  right  belonging  to  the  beneficiary,  realized 
in  the  shape  of  income,  which  is  the  subject-matter  of  the  tax 
under  the  statute  of  Massacliusetts. 

The  beneficiary  is  domiciled  in  Massachusetts,  has  the  protection 
of  her  laws,  and  there  receives  and  holds  the  income  from  the  trust 
property.  We  find  nothing  in  the  Fourteenth  Amendment  which 
prevents  the  taxation  in  Massachusetts  of  an  interest  of  this  char- 
acter, thus  owned  and  enjoyed  by  a  resident  of  the  State.  The 
case  presents  no  difference  in  principle  from  the  taxation  of  credits 
evidenced  by  the  obligations  of  persons  who  are  outside  of  the 
State  which  are  held  taxable  at  the  domicile  of  the  owner.  Kirt- 
land  V.  Hotchkiss,  100  U.  S.  491. 

We  find  no  error  in  the  judgment  and  the  same  is 

Affirmed. 

Dissenting,  Mr.  Justice  McReynolds. 


271  MAINE     l\     CiJJA^D    TUUXK    RAILWAY     CO.  [ciIAP.    III. 


CHAPTER   III 

EXCISE    TAX. 

MAIXE  V.  GRAND  TRUNK  RAILWAY  CO. 
SuPKEME  Court  of  the  United  States.     1892. 

[Reporlcd   Ml:    U.  S.   217.] 

Field,  J.  The  tax,  for  the  collection  of  which  this  action  is 
brought,  is  an  excise  tax  npon  the  defendant  corporation  for  the 
privilege  of  exercising  its  franchises  within  the  State  of  Maine.  It 
is  so  declared  in  the  statute  which  imposes  it;  and  that  a  tax  of 
this  character  is  within  the  power  of  the  State  to  levy  there  can 
be  no  question.  The  designation  does  not  always  indicate  merely 
an  inland  imposition  or  duty  on  the  consumption  of  commodities, 
but  often  denotes  an  impost  for  a  license  to  pursue  certain  callings, 
or  to  deal  in  special  commodities,  or  to  exercise  particular  fran- 
chises. It  is  used  more  frequently,  in  this  country,  in  the  latter 
sense  than  in  any  other.  The  privilege  of  exercising  the  franchises 
of  a  corporation  within  a  State  is  generally  one  of  value,  and  often 
of  great  value,  and  the  subject  of  earnest  contention.  It  is  natural, 
therefore,  that  the  corporation  should  be  made  to  bear  same  pro- 
portion of  the  burdens  of  government.  As  the  granting  of  the 
privilege  rests  entirely  in  the  discretion  of  the  State,  wlietlier  the 
corporation  be  of  domestic  or  foreign  origin,  it  may  be  conferred 
upon  such  conditions,  pecuniary  or  otherwise,  as  the  State  in  its 
judgment  may  deem  most  conducive  to  its  interests  or  policy.  It 
may  require  the  payment  into  its  treasury,  each  year,  of  a  specific 
sum,  or  may  apportion  the  amount  exacted  according  to  the  value 
of  the  business  permitted,  as  disclosed  by  its  gains  or  receipts  of 
the  present  or  past  years.  The  character  of  the  tax,  or  its  validity, 
is  not  determined  by  the  mode  adopted  in  fixing  its  amount  for  any 
specific  period  or  the  times  of  its  payment.  The  whole  field  of  in- 
quiry into  the  extent  of  revenue  from  sources  at  the  command  of 
the  corporation,  is  open  to  the  consideration  of  the  State  in  de- 
termining what  may  be  justly  exacted  for  the  privilege.  The  rule 
of  apportioning  the  charge  to  the  receipts  of  the  business  would 
seem  to  be  eminently  reasonable,  and  likely  to  produce  the  most 
satisfactory  results,  both  to  the  State  and  the  corporation  taxed. 

The  court  below  held  that  the  imposition  of  the  taxes  was  a 
regulation  of  commerce,  interstate  and  foreign,  and  therefore  in 
conflict  with  the  exclusive  power  of  Congress  in  that  respect;  and 
on  that  ground  alone  it  ordered  judgment  for  the  defendant.  This 
ruling  was  founded  upon  the  assumption  that  a  reference  by  the 


CHAP.     III.]         MAINE    V.    GRAND    TUUNK    KAII.WAY    CO.  275 

statute  to  the  tran.sjiortation  receipts  and  to  a  certain  percentage 
of  the  same  in  detonnining  tlie  amount  of  the  excise  tax,  was  in 
effect  the  imposition  of  llie  tax  upon  such  receipts,  and  tlierefore 
an  interference  with  interstate  and  foreign  commerce.  But  a  resort 
to  those  receipts  was  simply  to  ascertain  the  value  of  the  business 
done  by  the  corporation,  and  thus  obtain  a  guide  to  a  reasonable 
conclusion  as  to  tbe  amount  of  the  excise  tax  which  should  be  levied; 
and  we  are  unalde  to  perceive  in  that  resort  any  interference  with 
transportation,  domestic  or  foreign,  over  the  road  of  the  railroad 
company,  or  any  regulation  of  commerce  which  consists  in  such 
transportation.  If  the  amount  ascertained  were  specifically  im- 
posed as  the  tax,  no  objection  to  its  validity  would  be  pretended. 
And  if  the  inquiry  of  the  State  as  to  the  value  of  the  privilege 
were  limited  to  receipts  of  certain  past  years  instead  of  the  year 
in  which  the  tax  is  collected,  it  is  conceded  that  the  validity  of  the 
tax  wouUl  not  be  affected ;  and  if  not,  we  do  not  see  how  a  reference 
to  the  results  of  any  other  year  could  aft'ect  its  character.  There  is 
no  levy  by  the  statute  on  the  receipts  themselves,  either  in  form  or 
fact;  they  constitute,  as  said  above,  simply  the  means  of  ascertaining 
the  value  of  the  privilege  conferred. 

This  conclusion  is  sustained  by  the  decision  in  Home  Insurance 
Co.  V.  New  York,  134  U.  S.  594.  The  Home  Insurance  Company 
was  a  corporation  created  under  the  laws  of  Xew  York,  and  a  por- 
tion of  its  capital  stock  was  invested  in  bonds  of  the  United  States. 
l)y  an  act  of  the  legislature  of  that  State,  of  1881,  it  was  declared 
that  every  corporation,  joint  stock  company  or  association,  then  or 
thereafter  incorporated  under  any  law  of  the  State,  or  of  any  other 
State  or  country,  and  doing  business  in  the  State,  with  certain 
designated  exceptions  not  material  to  the  question  involved,  should 
l)e  subject  to  a  tax  upon  its  corporate  franchise  or  business,  to  be 
computed  as  follows :  if  its  dividend  or  dividends  made  or  declared 
during  the  year  ending  the  first  day  of  November,  amounted  to 
six  per  centum  or  more  upon  the  par  value  of  its  capital  stock, 
then  the  tax  was  to  be  at  the  rate  of  one-quarter  mill  upon  the 
capital  stock  for  each  one  per  cent  of  the  dividends.  A  less  rate 
was  provided  where  there  was  no  dividend  or  a  dividend  less 
than  six  per  cent.  The  purpose  of  the  act  was  to  fix  the  amount 
of  the  tax  each  year  upon  the  franchise  or  business  of  the  corpo- 
ration by  the  extent  of  dividends  upon  its  capital  stock,  or,  where 
there  were  no  dividends,  according  to  the  actual  value  of  the  capital 
stock  during  the  year.  The  tax  payable  by  the  company,  estimated 
according  to  its  dividends,  under  that  law,  aggregated  seven  thou- 
sand five  hundred  dollars.  The  company  resisted  its  payment, 
asserting  that  the  tax  was,  in  fact,  levied  upon  the  capital  stock  of 
the  company,  contending  that  there  should  be  deducted  from  it  a 
sum  bearing  the  same  ratio  thereto  that  the  amount  invested  in 
bonds  of  the  United  States  bore  to  its  capital  stock,  and  that  the 
law  requiring  a  tax,  witliout  such  reduction,  was  unconstitutional 
and  void.  It  was  held  that  the  tax  was  not  upon  the  ca]iital 
stock  of  the  company  nor  upon  any  bonds  of  the  United  States 


276  THOMAS   V.  UNITED  STATES.  [CHAP.  III. 

composing  a  part  of  that  stock,  but  upon  the  corporate  fran- 
chise or  business  of  the  company,  and  that  reference  was  only 
made  to  its  capital  stock  and  dividends  for  the  purpose  of  deter- 
mining the  amount  of  the  tax  to  be  exacted  each  year.  And 
the  court  said :  "  The  validity  of  the  tax  can  in  no  way  be  de- 
pendent upon  the  mode  which  the  State  may  deem  fit  to  adopt 
in  lixing  the  amount  for  any  year  which  it  will  exact  for  the 
franchise.  No  constitutional  objection  lies  in  the  way  of  a  legis- 
lative body  prescribing  any  mode  of  measurement  to  determine 
the  amount  it  will  charge  for  the  privileges  it  bestows." 

The  case  of  Philadelphia  and  Southern  Steamship  Co.  v.  Penn- 
sylvania, 122  U.  S.  326,  in  no  way  conflicts  with  this  decision. 
That  was  tlie  case  of  a  tax,  in  terms,  upon  the  gross  receipts  of 
a  steamship  company,  incorporated  under  the  laws  of  the  State, 
derived  from  the  transportation  of  persons  and  property  between 
different  States  and  to  and  from  foreign  countries.  Such  tax 
was  held,  without  any  dissent,  to  be  a  regulation  of  interstate  and 
foreign  commerce,  and,  therefore,  invalid.  We  do  not  question  the 
correctness  of  that  decision,  nor  do  the  views  we  hold  in  this  case 
in  any  way  qualify  or  impair  it. 

It  follows  from  what  we  liave  said,  that  the  judgment  of  the 
court  below  must  be 

Reversed,  and  the  cause  remanded,  ivith  directions  to  enter 
judgment  in  favor  of  the  State  for  the  amount  of  the  taxes 
demanded;  and  it  is  so  ordered. 

Bradley^  Harlan^  Lamar  and  Brown  dissented. 


THOMAS    V.    UNITED    STATES. 
Supreme  Court  of  the  Unitpzd  States.     1904. 

[Reported  192   U.  8.  363.] 

George  C.  Thomas  was  indicted  for  violation  of  the  internal 
revenue  laws  of  the  United  States  in  that,  being  a  broker  in  the 
city  of  New  York,  he  sold  certain  shares  of  Atchison  preferred 
stock  and  omitted  the  required  revenue  stamps  from  the  mem- 
orandum of  sale.  He  demurred  to  the  indictment  on  the  ground 
that  the  act  of  June  13,  1898,  30  Stat.  448,  c.  448,  which  required 
the  stamps  to  be  affixed,  was  unconstitutional.  The  demurrer 
was  overruled,  the  court,  Thomas,  J.,  delivering  an  opinion.  115  Fed. 
Rep.  207. 

Trial  was  had,  defendant  found  guilty,  and  judgment  rendered, 
sentencing  him  to  pay  a  fine  of  five  hundred  dollars. 

The  case  was  then  brought  here  on  writ  of  error. 

Fuller,  C.  J.  By  the  first  clause  of  section  eight  of  article  I 
of  the   Constitution,   Congress  is  empowered   "to  lay  and   collect 


CHAP.    III.]  THOMAS    V.    UNITED    STATES.  277 

taxes,  duties,  imposts  and  excises,"  "but  all  duties,  imposts  and 
excises  shall  be  uniform  throughout  the  United  States." 

This  division  of  taxation  into  two  classes  is  recognized  through- 
out the  Constitution. 

By  clause  three  of  section  two,  representatives  and  direct  taxes 
are  required  to  be  apportioned  according  to  the  enumeration  pre- 
scribed, and  by  clause  four  of  section  nine,  no  capitiition  or  otlier 
direct  tax  can  be  laid  except  according  to  that  enumeration. 

By  clause  one  of  section  nine,  the  migration  or  importation  of 
persons  by  the  States  was  not  to  be  prohibited  prior  to  1808,  but 
a  tax  or  duty  could  be  imposed  on  such  importation,  not  exceeding 
ten  dollars  for  each  person. 

By  clause  five  it  is  provided:  "No  tax  or  duty  shall  be  laid  on 
articles  exported  from  any  State." 

By  clause  tAvo  of  section  ten,  no  State  can,  "without  the  consent 
of  the  Congress,  lay  any  imposts  or  duties  on  imports  or  exports, 
except  what  may  be  absolutely  necessary  for  executing  its  inspection 
laws."  By  clause  three  the  States  are  forbidden,  without  the  con- 
sent of  Congress,  to  "  lay  any  duty  of  tonnage." 

And  these  two  classes,  taxes  so-called,  and  "  duties,  imposts 
and  excises,"  apparently  embrace  all  forms  of  taxation  contemplated 
by  the  Constitution.  As  was  observed  in  Pollock  i-.  Farmers'  I^oan 
and  Trust  Company,  157  U.  S.  429,  557:  "Although  there  have 
been  from  time  to  time  intimations  that  there  might  be  some  tax 
which  was  not  a  direct  tax  nor  included  under  the  words  '  duties, 
imposts  and  excises,'  such  a  tax  for  more  than  one  hundred  years 
of  national  existence  has  as  3'et  remained  undiscovered,  notwith- 
standing the  stress  of  particular  circumstances  has  invited  thorough 
investigation  into  sources  of  revenue." 

The  present  case  involves  a  stamp  tax  on  a  memorandum  or 
contract  of  sale  of  a  certificate  of  stock,  w^hich  plaintiff  in  error 
claims  was  unlawfully  exacted  because  not  falling  within  the  class 
of  duties,  imposts  and  excises,  and  being,  on  the  contrary,  a  direct 
tax  on  property. 

There  is  no  occasion  to  attempt  to  confine  the  words  duties, 
imposts  and  excises  to  the  limits  of  precise  definition.  We  think 
that  they  were  used  comprehensively  to  cover  customs  and  excise 
duties  imposed  on  importation,  consumption,  manufacture  and  sale 
of  certain  commodities,  privileges,  particular  business  transactions, 
vocations,  occupations  and  the  like. 

Taxes  of  this  sort  have  been  repeatedly  sustained  by  this  court, 
and  distinguished  from  direct  taxes  under  the  Constitution,  As 
in  Hylton  v.  United  States,  3  Dallas,  171,  on  the  use  of  carriages; 
in  Nicol  v.  Ames,  173  U.  S.  509,  on  sales  at  exchanges  or  boards 
of  trade;  in  Knowlton  v.  Moore,  178  U.  S.  41,  on  the  transmission 
of  property  from  the  dead  to  the  living;  in  Treat  v.  White,  181  U.  S. 
264,  on  agreements  to  sell  shares  of  stock  denominated  "calls"  by 
New  York  stock  brokers;  in  Patton  v.  Brady,  184  U.  S.  608,  on 
tobacco  manufactured  for  consumption. 

Brown    r.    Maryland,    13   Wlient.   419,   and   Fairbank    i-.    United 


278  JJEW  YOEiv  ex  rel.  hatch  r.  keakdon.  [ciiai'.  hi. 

Slates,  181  U.  S.  283,  are  not  in  point.  In  the  one  the  clause  of 
the  Constitution  was  considered  which  forbids  any  State,  with- 
out the  consent  of  Congress,  to  "lay  any  imposts  or  duties  on  im- 
ports or  exports,"  and  in  the  other,  that  "  no  tax  or  duty  shall  be 
laid  on  articles  exported  from  any  State."  The  distinction  between 
direct  and  indirect  taxes  was  not  involved  in  either  case. 

The  sale  of  stocks  is  a  particular  business  transaction  in  the 
exercise  of  the  privilege  afforded  by  the  laws  in  respect  to  cor- 
porations of  disposing  of  property  in  the  form  of  certificates.  The  ^  i 
stamp  duty  is  contingent  on  the  happening  of  the  event  of  sale,  !|| 
and  the  element  of  absolute  and  unavoidable  demand  is  lacking. 
As  such  it  falls,  as  stamp  taxes  ordinarily  do,  within  the  second 
class  of  the  forms  of  taxation. 

Judgment  affirmed. 


NEW  YOKK  ex  rel.  HATCH  v.  KEAEDON. 
Supreme  Court  of  the  United  States.     1906. 

[Reported  204   U.  8.   152.] 

Holmes,  J.  This  is  a  writ  of  error  to  revise  an  order  dismissing 
a  writ  of  habeas  corpus  and  remanding  the  relator  to  the  custody 
of  the  defendant  in  error.  The  order  was  made  by  a  single  Justice 
and  affirmed  successively  by  the  Appellate  Division  of  the  Supreme 
Court,  110  App.  Div.  821,  and  by  tlie  Court  of  Appeals,  184  N.  Y. 
431.  The  facts  are  these:  The  relator,  Hatch,  a  resident  of  Con- 
necticut, sold  in  New  York  to  one  Maury,  also  a  resident  of  Con- 
necticut, but  doing  business  in  New  York,  one  hundred  shares  of  the 
stock  of  the  Southern  Eailway  Company,  a  Virginia  corporation,  and 
one  hundred  shares  of  the  stock  of  the  Chicago,  Milwaukee  and  St. 
Paul  Railroad  Company,  a  AYisconsin  corporation,  and  on  the  same 
day  and  in  the  same  place  received  payment  and  delivered  the  cer- 
tificates, assigned  in  blank.  He  made  no  memorandum  of  the  sale 
and  affixed  to  no  document  any  stamp,  and  did  not  otherwise  pay 
the  tax  on  transfers  of  stock  imposed  by  the  New  York  Laws  of 
1905,  c.  241.  He  was  arrested  on  complaint,  and  thereupon  peti- 
tioned for  this  writ,  alleging  that  the  law  was  void  under  the  Four- 
teenth Amendment  of  the  Constitution  of  the  United  States. 

The  statute  in  question  levies  a  tax  of  two  cents  on  each  hundred 
dollars  of  face  value  of  stock,  for  every  sale  or  agreement  to  sell 
the  same,  etc. ;  to  be  paid  by  affixing  and  cancelling  stamps  for  the 
requisite  amount  to  the  books  of  the  company,  the  stock  certificate, 
or  a  memorandum  required  in  certain  cases.  Failure  to  pay  the 
tax  is  made  a  misdemeanor  punishable  by  fine,  imprisonment,  or 
both.  There  is  also  a  civil  penalty  attached.  The  petition  for  the 
writ  sets  up  only  the  Fourteenth  Amendment,  as  we  have  mentioned, 
but  both  sides  have  argued  the  case  under  the  commerce  clause  of 
the  Constitution,  Art.  I,  section  8,  as  well,  and  we  shall  say  a  few 
words  on  that  aspect  of  the  question. 


CHAP.    ITT.]        NEW  YORK  eX  Teh   HATCH    V.    ItEARDON.  279 

It  is  true  that  a  very  similar  stamp  act  of  the  United  States, 
the  act  of  Juue  13,  1898,  c.  448,  §  25,  Schedule  A,  30  Stat.  448, 
458,  was  upheld  in  Thomas  v.  United  States,  192  U.  S.  363.  But 
it  is  argued  that  dilt'erent  considerations  apply  to  the  States  and 
the  tax  is  said  to  be  bad  under  the  Fourteenth  Amendment  tor 
several  reasons.  In  the  hrst  place  it  is  said  to  be  an  arbitrary  dis- 
crimination. This  objection  to  a  tax  must  be  approached  with  the 
greatest  caution.  The  general  exj)ressions  of  the  Amendment  must 
not  be  allowed  to  upset  familiar  and  long-established  methods  and 
processes  by  a  formal  elaboration  of  rules  which  its  words  do  not 
import.  See  Michigan  Central  liailroad  Co.  v.  Powers,  201  U.  S. 
245,  293.  Stamp  acts  necessarily  are  confined  to  certain  classes  of 
transactions,  and  to  classes  which,  considered  economically  or  from 
the  legal  or  other  possible  points  of  view,  are  not  very  diiferent 
from  other  classes  that  escape.  You  cannot  have  a  stamp  act  with- 
out something  that  can  be  stamped  conveniently.  And  it  is  easy 
to  contend  that  justice  and  equality  cannot  be  measured  by  the 
convenience  of  the  taxing  power.  Yet  the  economists  do  not  con- 
demn stamp  acts,  and  neither  does  the  Constitution. 

The  objection  did  not  take  this  very  broad  form  to  be  sure.  But 
it  was  said  that  there  was  no  basis  for  the  separation  of  sales  of 
stock  from  sales  of  other  kinds  of  personal  property,  for  instance, 
especially,  bonds  of  the  same  or  other  companies.  But  bonds  in 
most  cases  pass  bv  delivery  and  a  stamp  tax  hardlv  could  be  en- 
forced. See  further,  Nicol  v.  Ames,  173  U.  S.  509,'  522,  523.  In 
Otis  V.  Parker,  187  U.  S.  GO(J,  practical  grounds  were  recognized 
as  sufficient  to  warrant  a  prohibition,  which  did  not  apply  to  sales 
of  other  property,  of  sales  of  stock  on  margin,  although  this  same 
argument  was  pressed  with  great  force.  .1  fortiori  do  they  warrant 
a  tax  on  sales,  which  is  not  intended  to  discriminate  against  or  to 
discourage  them,  but  simply  to  collect  a  revenue  for  the  benefit  of 
the  whole  community  in  a  convenient  way. 

It  is  urged  further  that  a  tax  on  sales  is  really  a  tax  on  prop- 
erty, and  that  tlierefore  the  act,  as  applied  to  the  shares  of  a  foreign 
corporation  owned  by  non-residents,  is  a  taking  of  property  without 
due  process  of  law.  Union  Pefrigerator  Transit  Co.  v.  Kentuck)% 
199  U.  S.  194.  This  argument  presses  the  expressions  in  Brown  v. 
Maryland,  12  Wheat.  419,  444;  Fairbank  v.  United  States,  181  U.  S. 
283,  and  intervening  cases,  to  new  applications,  and  farther  than 
they  properly  can  be  made  to  go.  Whether  we  are  to  distinguish  or 
to  identify  taxes  on  sales  and  taxes  on  goods  depends  on  the  scope 
of  the  constitutional  provision  concerned.  Compare  Foppiano  v. 
Speed,  199  U.  S.  501,  520.  k  tax  on  foreign  bills  of  lading  may  be 
held  equivalent  to  a  tax  on  exports  as  against  Article  I,  section  9 ; 
a  license  tax  on  importers  of  foreign  goods  may  be  held  an  un- 
authorized interference  with  commerce:  and  yet  it  would  be  con- 
sistent to  sustain  a  tax  on  sales  within  the  State  as  against  the 
Fourteenth  Amendment  so  far  as  that  alone  is  concerned.  What- 
ever the  right  of  parties  engaged  in  commerce  among  the  St<Ttos,  a 
sale  depends  in  part  on  the  law  of  the  State  where  it  takes  place  for 


280      ^'E^v  york  cx  rcl.   hatch  r.  eeaedon.    [cHAr.  iii. 

its  validity  and,  in  the  courts  of  that  State,  at  least,  for  the  mode  of 
proof.  No  one  would  contest  the  power  to  enact  a  statute  of  frauds 
for  such  transactions.  Therefore  the  State  may  make  parties  pay 
for  the  help  of  its  laws,  as  against  this  objection.  A  statute  requir- 
ing a  memorandum  in  writing  is  quite  as  clearly  a  regulation  of  the 
business  as  a  tax.  It  is  unnecessary  to  consider  other  answers  to 
this  point. 

Yet  another  ground  on  which  the  owners  of  stock  are  said  to 
be  deprived  of  their  property  without  due  process  of  law  is  the 
adoption  of  the  face  value  of  the  shares  as  the  basis  of  the  tax. 
One  of  the  stocks  was  worth  thirty  dollars  and  seventy-five  cents 
a  share  of  the  face  value  of  one  hundred  dollars,  the  other  one 
hundred  and  seventy-two  dollars.  The  inequality  of  the  tax,  so 
far  as  actual  values  are  concerned,  is  manifest.  But,  here  again 
equality  in  this  sense  has  to  yield  to  practical  considerations  and 
usage.  There  must  be  a  fixed  and  indisputable  mode  of  ascertain- 
ing a  stamp  tax.  In  another  sense,  moreover,  there  is  equality. 
"When  the  taxes  on  two  sales  are  equal  the  same  number  of  shares 
is  sold  in  each  case ;  that  is  to  say,  the  same  privilege  is  used  to  the 
same  extent.  Valuation  is  not  the  only  thing  to  be  considered.  As 
was  pointed  out  by  the  Court  of  Appeals,  the  familiar  stamp  tax 
of  two  cents  on  checks,  irrespective  of  amount,  the  poll  tax  of  a 
fixed  sum,  irrespective  of  income  or  earning  capacity,  and  many 
others,  illustrate  the  necessity  and  practice  of  sometimes  substitut- 
ing count  for  weight.  See  Bell  Gap  Railroad  Co.  v.  Pennsylvania, 
134  U.  S.  232;  Merchant  &  Manufacturers'  Bank  v.  Pennsylvania, 
167  U.  S.  461,  "Without  going  farther  into  a  discussion  which, 
perhaps,  could  have  been  spared  in  view  of  the  decision  in  Thomas 
V.  United  States,  192  U.  S.  363,  and  the  constitutional  restrictions 
upon  Congress,  we  are  of  opinion  that  the  New  York  statute  is  valid, 
60  far  as  the  Fourteenth  Amendment  is  concerned. 

The  other  ground  of  attack  is  that  the  act  is  an  interference 
with  commerce  among  the  several  States.  Cases  were  imagined, 
which,  it  was  said,  would  fall  within  the  statute,  and  yet  would  be 
cases  of  such  commerce ;  and  it  was  argued  that  if  the  act  embraced 
any  such  cases  it  was  void  as  to  them,  and,  if  void  as  to  them,  void 
altogether,  on  a  principle  often  stated.  United  States  v.  Ju  Toy, 
198  U.  S.  253,  262.  That  the  act  is  void  as  to  transactions  in  com- 
merce between  the  States,  if  it  applies  to  them,  is  thought  to  be 
shown  by  the  decisions  concerning  ordinances  requiring  a  license 
fee  from  drummers,  so  called,  and  the  like.  Eobbins  v.  Shelby 
County  Taxing  District,  120  U.  S.  489 ;  Stockard  v.  Morgan,  185 
U.  S.  27 ;  Piearick  v.  Pennsylvania,  203  U.  S.  507. 

But  there  is  a  point  beyond  which  this  court  does  not  consider 
arguments  of  this  sort  for  the  purpose  of  invalidating  the  tax  laws 
of  a  State  on  constitutional  grounds.  This  limit  has  been  fixed  in 
many  cases.  It  is  that  unless  the  party  setting  up  the  unconstitu- 
tionality of  the  state  law  belongs  to  the  class  for  whose  sake  the 
constitutional  protection  is  given,  or  the  class  primarily  protected, 
this  court  does  not  listen  to  his  objections,  and  will  not  go  into 


CHAP.  III.]  m:\v  yuuk  ex  rel.  hatcu  r.  j:i:aedox.  281 

imaginary  cases,  notwitlistandino:  the  seeming  logic  of  the  position 
that  it  must  do  so,  because  it  lor  any  reason,  or  as  against  any  class 
embraced,  the  law  is  unconstitutional,  it  is  void  as  to  all.  Super- 
visors I'.  Stanley,  105  U.  S.  3U5,  311;  Clark  v.  Kansas  City,  17G 
U.  S.  114,  118;  Lampasas  v.  Bell,  180  U.  S.  2T6,  283,  284;  Cronin 
V.  Adams,  192  U.  S.  108,  114.  If  the  law  is  valid  when  confined 
to  the  class  of  the  party  before  the  court,  it  may  be  more  or  less  of 
a  speculation  to  inquire  what  excepti<ms  the  state  court  may  read 
into  general  words,  or  how  far  it  may  sustain  an  act  tliat  partially 
fails.  With  regard  to  taxes,  especially,  perhaps  it  miglit  be  assumed 
that  the  legislature  meant  them  to  be  valid  to  whatever  extent  tliey 
could  be  sustained,  or  some  other  peculiar  principle  might  be  applied. 
See  e.  g.  People's  National  Bank  v.  Marye,  lUI  L\  S.  272,  283. 

Whatever  the  reason,  the  decisions  are  clear,  and  it  was  because 
of  them  that  it  was  inquired  so  carefully  in  the  drummer  cases 
whether  the  party  concerned  was  himself  engaged  in  commerce 
between  the  States.  Stockard  v.  Morgan,  185  U.  S.  27,  30,  35,  36; 
Caldwell  v.  North  Carolina,  187  U,  S.  iS'l'l;  liearick  r.  Pennsylvania, 
203  U.  S.  507.  Therefore  we  begin  with  the  same  inquiry  in  this 
case,  and  it  is  plain  that  we  can  get  no  farther.  There  is  not  a 
shadow  of  a  ground  for  calling  the  transaction  described  such  com- 
merce. The  communications  between  the  parties  were  not  between 
different  States,  as  in  Western  Union  Telegrajjh  Co.  v.  Texas,  105 
U.  S.  4()0,  and  the  bargain  did  not  contemplate  or  induce  the  trans- 
port of  property  from  one  State  to  another,  as  in  the  drummer  cases, 
liearick  v.  Pennsylvania,  supra.  The  bargain  was  not  affected  in 
any  way,  legally  ov  practically,  Ijy  the  fact  that  the  parties  happened 
to  have  come  from  another  State  before  they  made  it.  It  does  not 
appear  that  the  petitioner  came  into  New  York  to  sell  his  stock,  as 
it  was  put  on  his  behalf.  It  appears  only  that  he  sold  after  coming 
into  the  State.  But  we  are  far  from  implying  that  it  would  have 
made  any  difference  if  he  had  come  to  New  York  with  the  supposed 
intent  before  any  bargain  was  made. 

It  is  said  that  the  property  sold  was  not  within  the  State.  The 
immediate  object  of  sale  was  the  certificate  of  stock  present  in 
New  York.  That  document  was  more  than  evidence,  it  was  a  con- 
stituent of  title.  No  doubt,  in  a  more  remote  sense,  the  object  was 
the  membership  or  share  which  the  certificate  conferred  or  made 
attainable.  More  remotely  still  it  was  an  interest  in  the  property 
of  the  corporation,  which  miglit  be  in  other  States  than  either  the 
corporation  or  the  certificate  of  stock.  But  we  perceive  no  relevancy 
ill  the  analysis.  The  facts  that  the  property  sold  is  outside  of  the 
State  and  the  seller  and  buyer  foreigners  are  not  enough  to  make 
a  sale  commerce  with  foreign  nations  or  among  the  several  States, 
and  that  is  all  that  there  is  here.  —  On  the  general  question  there 
should  be  comjnired  with  the  drummer  cases  the  decisions  on  the 
other  side  of  the  line.  Nathan  v.  Ijouisiana,  8  ITow.  73 ;  Woodruff 
V.  Parham,  8  Wall.  123;  BroxMi  v.  Houston,  114  U.  S.  622;  Emert 
V.  Missouri,  15(5  U.  S.  2i)6.  A  tax  is  not  an  unconstitutional  regu- 
lation in  every  case  where  an  absolute  prohibition  of  sales  would  be 


2S2  EQUIT.    LIFE    ASSURANCE    SOCIETY    V.    PENN.  [ciIAP.    III. 

one.  American  Steel  and  Wire  Co.  v.  Speed,  192  U.  S.  500.  We 
think  it  unnecessary  to  explain  at  greater  length  the  reasons  for 
our  opinion  that  the  petitioner  has  suffered  no  unconstitutional 
wrong. 

Order   affirmed. 


EQUITABLE  LIFE  ASSUEANCE  SOCIETY  v. 
PENNSYLVANIA. 

Supreme  Court  of  the  United  States.     1915. 

[Reported  238  U.  8.  143.] 

Holmes,  J.  The  Equitable  Life  Assurance  Society  of  the  United 
States,  the  plaintiff  in  error,  does  business  in  Pennsylvania.  By 
an  act  of  June  28,  1895,  that  State  levies  an  annual  tax  of  two 
per  cent  upon  the  gross  premiums  of  every  character  received 
from  business  done  within  the  State  during  the  preceding  year. 
The  Company  paid  large  taxes  under  this  act,  but  appealed  to  the 
state  courts  from  charges  made  by  the  State  Accounting  Officer 
in  respect  of  premiums  for  the  years  1906,  1907,  1908,  1909  and 
1910,  paid  to  the  Company  outside  the  State  by  residents  of 
Pennsylvania.  The  Supreme  Court  sustained  the  charge,  239  Pa. 
St.  288.  The  whole  discussion  there  was  whether  these  items  fell 
within  the  statute.  On  that  point  of  course  the  decision  of  the  state 
court  is  final,  and  as  the  Company  is  a  foreign  corporation  and 
this  is  held  to  be  a  tax  for  tlie  privilege  of  doing  business  in  the 
State,  it  is  obvious  that  the  scope  of  the  question  before  us  is  narrow, 
being  only  whether  the  statute  as  construed  deprives  the  Company 
of  its  property  without  due  process  of  law,  contrary  to  the  Four- 
teenth Amendment,  as  alleged.  It  is  true  that  the  plaintiff  in  error 
suggests  a  further  infraction  of  that  amendment  in  an  assumption 
by  the  Supreme  Court  of  an  unproved  fact:  that  the  beneficiaries 
of  the  policies  lived  in  Pennsylvania.  But  it  is  enough  to  answer 
that  we  understand  the  decision  when  it  uses  the  word  beneficiaries 
to  mean  parties  to  the  contracts,  the  insured,  and  that  the  assumption 
was  warranted  by  the  record  as  to  them. 

The  grounds  for  the  only  argument  open  are  that  a  State  cannot 
tax  property  beyond  its  jurisdiction,  Union  Transit  Co.  v.  Kentucky, 
199  U.  S.  194;  that  it  cannot  effect  that  result  indirectly  by  making 
the  payment  a  condition  of  the  right  to  do  local  business.  Western 
Union  Telegraph  Co.  v.  Kansas,  216  U.  S.  1 ;  Pullman  Co.  v.  Kansas 
216  U.  S.  56;  Ludwig  v.  Western  Union  Telegraph  Co.,  216  U.  S. 
146 ;  and  that  as  it  could  not  prohibit  the  contracts  it  cannot  im- 
pose the  tax.  Allgeyer  v.  Louisiana,  165  U.  S.  578.  In  aid  of  the 
effort  to  make  the  foregoing  decisions  applicable  it  is  argued  that 
this  is  a  property  tax.  But,  as  we  have  said,  the  Supreme  Court 
of  PennsylvaTiia  speaks  of  it  as  a  tax  for  the  privilege  of  doing 
business    within   the    Commonwealth,   and  whether   the   statement 


CHAP.    III.]         EQUIT.    LIFE   ASSUltANCE    SOCIETY    V.    I'ENN.  283 

is  a  construction  of  the  act  or  not  we  agree  with  it  so  far  at  least 
as  to  assume  that  if  that  characterization  is  necessary  to  sustain 
the  tax,  the  Legislature  meant  to  avail  itself  of  any  power  appro- 
priate to  that  end. 

Without  going  into  any  preliminary  matters  that  might  he  de- 
bated it  is  enough  for  us  to  say  that  we  agree  with  the  Supreme 
Court  of  the  State  in  its  line  of  reasoning;  applying  it  to  the  claim 
of  constitutional  rights  which  that  court  did  not  discuss.  The 
question  is  not  what  is  doing  business  within  a  State  in  such  a 
sense  as  to  lay  a  foundation  for  service  of  process  there.  It  being 
established  that  the  relation  of  the  foreign  company  to  domestic 
policy  holders  constituted  doing  business  within  the  meaning  of 
the  statute,  the  question  is  whether  the  Company  may  be  taxed 
in  respect  of  it,  in  this  way,  whatever  it  may  be  called.  We  are 
dealing  with  a  corporation  that  has  subjected  itself  to  the  juris- 
diction of  the  State;  there  is  no  question  that  the  State  has  a 
right  to  tax  it  and  the  only  doubt  is  whether  it  may  take  this  item 
into  account  in  fixing  the  figure  of  the  tax.  Obviously  the  limit 
in  that  regard  is  a  different  matter  from  the  inquiry  whether  the 
residence  of  a  policy  holder  would  of  itself  give  jurisdiction  over 
the  Company.  The  argument  of  the  state  court  is  that  the  Com- 
pany is  protecting  its  insured  in  Pennsylvania  equally  whether 
they  pay  their  premiums  to  the  Company's  agent  in  Philadelphia 
or  by  mail  or  in  person  to  another  in  New  York. 

These  are  policies  of  life  insurance  and  according  to  the  state- 
ment of  the  plaintiff  in  error  are  kept  alive  and  renewed  to 
residents  of  Pennsylvania  by  payments  from  year  to  year.  The 
fact  that  the  State  could  not  prevent  the  contracts,  so  far  as  that 
may  be  true,  has  little  bearing  upon  its  right  to  consider  the  benefit 
thus  annually  extended  into  Pennsylvania  in  measuring  the  value 
of  the  privileges  that  it  does  grant.  We  may  add  that  the  State 
profits  the  Company  equally  by  protecting  the  lives  insured, 
wherever  the  premiums  are  paid.  The  tax  is  a  tax  upon  a  privilege 
actually  used.  The  only  question  concerns  the  mode  of  measuring 
the  tax.  Flint  v.  Stone  Tracy  Co.,  220  U.  S.  107,  162,  1G3.  As 
to  that  a  certain  latitude  must  be  allowed.  It  is  obvious  that  many 
incidents  of  the  contract  are  likely  to  be  attended  to  in  Pennsylvania, 
such  as  payment  of  dividends  when  received  in  cnsh,  sending  an 
adjuster  into  the  State  in  case  of  dispute,  or  making  proof  of  death. 
See  Connecticut  Mut.  Life  Ins.  Co.  v.  Spratley,  172  F.  S.  602,  611; 
Pennsylvania  Lumbermen's  Mut.  Fire  Ins.  Co.  v.  Meyer,  197  U.  S. 
407,  415.  It  is  not  unnatural  to  take  the  policy  holders  residing  in 
the  State  as  a  measure  without  going  into  nicer  if  not  impracticable 
details.  Taxation  has  to  be  determined  by  general  principles,  and 
it  seems  to  us  impossible  to  say  that  the  rule  adopted  in  Pennsylvania 
goes  beyond  what  the  Constitution  allows. 

Judgment  affirmed. 


284  COOK  COUNTY  V.    FAIKBANK.  [CHAP.  III. 


COOK  COUXTY  V.  FAIRBANK. 
Supreme  Coukt  of  Illixois.     1906. 

[Reported  222  III.  578.] 

Hand,  J.  This  was  an  action  of  assumpsit  commenced  by  Kellogg 
Fairbank  and  Benjamin  Carpenter,  appellees,  as  the  executors  of 
the  last  will  and  testament  of  Nathaniel  K.  Fairbank,  deceased,  in 
the  superior  court  of  Cook  county,  against  Cook  county,  the  ap- 
pellant, to  recover  the  sum  of  $1:250,  which,  as  such  executors,  the 
appellees  had  paid  under  protest  to  Patrick  J.  Cahill,  as  clerk  of 
the  probate  court  of  Cook  county,  for  the  docket  fee  provided  to 
be  paid  in  an  act  entitled  ""An  act  to  provide  for  fees  of  clerks  of 
probate  courts  in  counties  of  the  third  class,"  approved  May  29, 
1879,  in  force  July  1,  1879,  and  the  various  amendments  thereto, 
(Kurd's  Stat.  1905,  par.  63,  chap.  53,  p.  1075,)  which  amount  had 
been  turned  over  by  said  Cahill,  as  such  clerk,  under  the  statute, 
to  the  treasurer  of  said  Cook  county  prior  to  the  bringing  of  this 
suit.  The  general  issue  was  filed  and  the  case  was  tried  before 
the  court  without  a  jury,  which  trial  resulted  iji  a  finding  and 
judgment  in  favor  of  the  appellees  for  said  sum  of  $1250  and  costs, 
and  Cook  county  has  prosecuted  an  appeal  direct  to  this  court  on 
the  ground  that  the  constitutionality  of  the  paragraph  of  said 
statute  which  provides  for  the  payment  of  said  docket  fee  is  in- 
volved, and  upon  propositions  of  law  submitted  was  held  to  be  void 
by  the  trial  court,  which  paragraph  reads  as  follows: 

"  On  application  for  the  grant  of  letters  testamentary,  of  ad- 
ministration, guardianship  or  conservatorship,  it  shall  be  the  duty 
of  the  applicant  to  state  in  his  or  her  petition  the  value  of  all  the 
real  and  personal  estate  of  such  deceased  person,  infant,  idiot, 
insane  person,  lunatic,  distracted  person,  drunkard  or  spendthrift, 
as  the  case  may  be,  and  on  the  grant  of  letters  testamentary,  ad- 
ministration, guardianship  or  conservatorship,  there  shall  be  paid 
to  the  clerk  of  said  probate  court,  from  the  proper  estate,  and 
charged  as  costs,  a  docket  fee  as  follows:  When  the  estate  does  not 
exceed  $5000,  $5;  and  the  sum  [of]  one  (1)  dollar  for  each  and 
every  additional  $1000  of  the  estate  of  such  deceased  person,  infant, 
idiot,  insane  person,  lunatic,  distracted  person,  drunkard  or  spend- 
thrift as  the  case  may  be.  In  all  cases  where  any  deceased  person 
shall  leave  him  or  her  surviving  a  widow  or  children  resident  of 
this  State,  who  are  entitled  out  of  said  estate  to  a  widow's  or  child's 
award,  and  the  entire  estate  real  and  personal  of  such  deceased 
person  shall  not  exceed  $2000,  and  in  the  case  of  any  minor  whose 
estate  real  and  personal  does  not  exceed  the  sum  of  $1000,  and 
whose  father  is  dead,  and  in  all  cases  of  any  idiot,  insane  person, 
lunatic,  or  distracted  person,  drunkard  or  spendthrift,  when  such 
person  has  a  wife  or  infant  child  dependent  on  such  person  for 
support,  and  the  entire  estate  of  such  person  shall  not  exceed  the 


CHAP.    III.]  COOK     COUNTY      V.     l-AIKBAXK.  285 

sum  of  $2000,  the  probate  judge  (by  order  of  court)  shall  remit 
and  release  to  such  estate  all  of  the  costs  herein  provided  for.  In 
all  estates  not  exceeding  $500  in  value,  the  judge  of  the  probate 
court  may  in  his  discretion  suspend,  modify  or  remit  the  costs  by 
order  of  court  duly  made." 

Tlie  record  shows,  without  dispute,  that  the  last  will  and  testa- 
ment of  Nathaniel  Iv.  Fairbank  was  duly  proven,  admitted  to  probate 
and  ordered  recorded  in  the  probate  cuurt  of  Cook  county  c^n  the 
20tli  day  of  I^Iay,  1!)03,  and  on  tiiat  day  it  was  ordered  that  letters 
testamentary  issue  to  the  appellees;  that  on  the  fifth  day  of  June 
following,  the  appellees  demanded  of  said  Cahill  that  he  issue  and 
deliver  to  them  said  letters  testamentary,  which  he  declined  to  do 
unless  they  paid  to  him,  as  a  condition  precedent  to  their  delivery, 
a  docket  fee  of  $1250  which  had  been  taxed  by  him  against  said 
estate;  tiuit  thereupon  the  appellees  filed  their  petition  in  the  pro- 
bate court  of  said  county,  in  which  they  represented  that  the  affairs 
of  said  estate  needed  immediate  and  particular  attention,  and  that 
they,  as  the  executors  thereof,  could  not  enter  upon  the  discliarge 
of  their  duties  as  such  executors  without  possession  of  their  letters 
testamentary  and  that  great  loss  might  come  to  said  estate  if  the 
delivery  of  said  letters  was  further  delayed,  which  letters,  they 
averred,  the  said  Cahill,  upon  demand,  had  refused  to  deliver  to 
them  unless  they  first  paid  to  him  the  sum  of  $1250  as  a  docket  fee. 
They  also  averred  the  paragraph  of  the  statute  requiring  the  pay- 
ment of  said  docket  fee  waa  unconstitutional  and  void,  and  asked 
that  said  clerk  be  ordered  to  deliver  said  letters  to  them  forthwith 
and  without  the  payment  of  said  docket  fee.  The  prayer  of  the 
petition  was  denied,  and  the  appellees  again  protested,  in  writing, 
against  the  payment  of  the  said  docket  fee,  but  the  clerk  still  per- 
sisted in  his  refusal  to  deliver  said  letters  without  the  payment  of 
said  docket  fee,  whereupon  the  appellees  paid  to  him,  in  open  court, 
said  sum  of  $1250,  and  thereupon  brought  this  suit  to  recover 
back  the  amount  so  paid. 

We  will  first  consider  the  constitutionality  of  the  paragraph 
of  the  act  of  1879  above  set  forth. 

Section  12  of  article  10  of  the  constitution  of  1870  provides: 
"  The  General  Assembly  shall,  by  general  law,  uniform  in  its  opera- 
tion, provide  for  and  regulate  tlie  fees  of  said  officers  [State,  coimty 
and  township]  and  their  successors,  so  as  to  reduce  the  same  to  a 
reasonable  compensation  for  services  actually  rendered." 

While  the  amount  demanded  of  the  appellees  by  said  clerk  as  a 
condition  precedent  to  the  delivery  to  them  of  their  letters  testa- 
mentary is  designated  in  the  statute  "a  docket  fee,"  it  is  apparent 
that  the  amount  exacted  by  the  clerk  was  in  no  way  measured  by 
the  amount  or  value  of  the  services  performed  by  him,  but  the 
charge  against  the  estate  depended  entirely  upon  the  si^e  or  amount 
of  the  estate.  If  an  estate  does  not  exceed  in  value  $2000  no  docket 
fee  is  to  be  taxed.  If  it  is  more  than  that  amount  and  does  not 
exceed  in  value  $5000  a  docket  fee  of  $5  is  to  be  taxed,  or  if  the  estate 
is  of  the  size  of  the  Fairbank  estate  a  fee  of  $1250  is  to  be  taxed. 


286  COOK    COUNTY    V.    FAIKBANK.  [ciIAP.    III. 

although  the  docketing  of  the  estate,  in  each  case,  in  the  ottice  of 
the  clerk  of  the  j^jrobate  court  would  require  the  same  amount  of 
labor  by  the  clerk,  and  no  more.  The  provision  of  the  constitution 
above  referred  to,  required  the  General  Assembly,  by  general  law, 
uniform  in  its  operation,  to  regulate  the  fees  of  county  olHcers  in 
such  manner  that  the  fees  charged  and  collected  by  them  shall  be 
'"a  reasonable  compensation  for  services  actually  rendered."  Clearly, 
the.  framers  of  that  provision  of  the  constitution  intended  that  the 
fees  of  probate  courts  in  counties  of  the  third  class  should  be  based 
upon  the  amount,  quality  and  character  of  the  services  performed 
by  the  clerks  of  said  courts,  and  not  arbitrarily  fixed  on  the  basis 
of  the  value  or  amount  of  the  estates  which  might  pass  through 
those  courts,  and  we  think  it  evident  the  amount  designated  in 
said  statute  as  a  docket  fee  was  not  intended  by  the  framers  of 
said  statute  to  represent  the  value  of  services  actually  rendered  by 
the  probate  clerk  in  each  estate  in  docketing  the  estate,  but  that  said 
statute  was  intended  by  its  framers  to  furnish  a  means  whereby 
the  public  revenues  of  counties  of  the  third  class  in  the  State  would 
be  increased,  by  collecting  through  the  probate  court  a  charge  upon 
the  designated  estates.  The  amount  sought  to  be  retained  by  the 
probate  clerk  was  therefore,  properly  speaking,  not  a  fee,  but  was  a 
burden  or  charge  imposed  upon  said  estate  to  raise  money  for  public 
purposes,  regardless  of  the  value  of  the  services  actually  rendered 
the  estate,  which  is  in  conflict  with  the  constitutional  provision 
hereinbefore  set  forth,  and  which  would  bring  said  burden  or  charge 
within  the  well  recognized  definition  of  a  tax,  which  may,  in  a  gen- 
eral sense,  be  defined  to  be  a  burden  or  charge  imposed  by  the  legis- 
lative power  of  the  State  upon  persons  or  property  for  public  uses. 
Dalrymple  v.  City  of  Milwaukee,  53  Wis.  178. 

The  view  that  a  charge  fixed  by  statute  for  the  service  to  be 
performed  by  an  oflficer  where  the  charge  has  no  relation  to  the  value 
of  the  services  performed,  and  where,  as  here,  the  amount  collected 
eventually  finds  its  way  into  the  treasury  of  the  branch  of  govern- 
ment whose  officer  or  officers  collect  the  charge,  is  not  a  fee  but  a 
burden  or  charge  in  the  nature  of  a  tax,  has  been  held  in  numerous 
cases  in  the  United  States.  In  State  v.  Case,  1  L.  II.  A.  (N.  S.)  152, 
decided  by  the  Supreme  Court  of  Washington  in  July,  1905,  and 
wherein  was  involved  the  constitutionality  of  a  statute  which  re- 
quired the  payment  of  $5  in  probate  proceedings  at  the  time  the 
first  paper  was  filed,  and  thereafter,  when  the  appraisement  was 
returned  into  court,  an  additional  sum  was  to  be  paid,  as  follows: 
$2.50  for  estates  between  $1000  and  $2000,  increasing  on  a  sliding 
scale,  depending  on  the  value  of  the  estate,  the  court  said  (p.  155)  : 
"  It  is  true  the  statute  calls  the  charge  a  '  fee,'  but  if  it  is  apparent 
upon  the  face  of  the  statute  that  the  charge  is,  in  fact,  not  based 
upon  actual  and  necessary  services  rendered  or  to  be  rendered,  but 
is  based  entirely  upon  a  property  valuation,  thereby  partaking  of 
the  nature  of  tax,  it  would  seem  to  be  wholly  immaterial  by 
what  name  the  statute  may  designate  it.  .  .  .  His  service  [those 
of  the,  clerk]   in  the  premises  are  purely  clerical,  and  the  amount 


CHAP.    III.]  COOK     COUNTY      V.     rAIKBANK.  287 

thereof  depends  upon  tlie  filings  and  records  of  oaoh  particular 
case,  which  can  in  no  reasonable  sense  be  said  to  depend  in  each 
given  case  upon  the  value  of  the  estate.  It  seems  clear,  therefore^ 
that  this  statute  exacts  paynients  regulated  by  property  valuations 
alone,  and  that  it  must  thcrel'orc  be  a  tax  upon  property. 

In  State  v.  Mann,  76  Wis.  4G!),  mandamus  was  brought  to  compel 
the  county  judge  to  proceed  with  the  administration  of  an  estate. 
The  statute  required  the  administrators  to  pay  to  the  county  treas- 
ury, for  the  use  of  the  county,  in  lieu  of  fees,  a  sum  equal  to  one- 
half  of  one  per  cent  on  $500,000  of  the  appraised  value  of  said 
estate  and  one-tenth  of  one  per  cent  on  the  excess,  which  amounts, 
as  taxed,  aggregated  the  sum  of  $2,631.05.  Payment  was  required 
on  the  return  and  approval  of  the  inventory  and  was  made  a  part 
of  the  expense  of  administration.  The  court,  in  holding  the  act 
unconstitutional,  on  page  477,  said :  "  Besides,  the  amount  of  this 
exaction  is  in  no  way  dependent  upon  the  amount  or  value  of  such 
services  of  the  judge  or  register  of  probate,  but  depends  entirely 
upon  such  valuation  or  appraisal  of  the  estate.  .  .  .  Compensation 
for  services  must  necessarily  be  graduated  by  the  amount,  quality 
and  character  of  the  services.  But  here  the  amount  exacted  bears 
no  relation  to  such  services.  .  .  .  We  must  hold  that  the  exaction 
in  question  is  not  a  probate  fee,  nor  in  lieu  of  nor  equivalent  to  a 
probate  fee.  It  is  nothing  less  than  a  charge  imposed  by  the  legis- 
lature as  a  condition  precedent  to  allowing  the  county  court  to 
proceed  with  the  administration  of  this  estate.  Such  charge  is 
necessarily  a  burden  so  imposed  upon  such  administrators  or  such 
estate,  or  both,  to  raise  money  for  public  purposes.  This  brings 
it  within  a  well  recognized  definition  of  a  tax.  ...  It  is  very 
obvious  that  the  charge  imposed  by  the  act  in  question  is  essentially 
a  tax." 

And  in  State  v.  GJorman,  40  Minn.  232,  mandamus  was  brought 
to  compel  the  probate  court  to  proceed  with  the  settlement  of  an 
estate,  which  it  had  refused  to  do  until  the  sum  of  $5000  was  paid. 
The  statute  provided  graduated  fees,  dependent  upon  the  value  of 
the  estate  as  shown  by  the  inventory.  Between  $2000  and  $5000 
a  fee  of  $10  was  exacted,  ascending  with  the  value  of  the  estate, 
until  it  provided  that  in  estates  of  over  $500,000  a  fee  of  $5000 
should  be  charged.  The  court,  on  page  233,  said :  "  But  the  sums 
required  by  this  act  to  be  paid  into  the  county  treasury  must  be  re- 
garded as  taxes,  in  the  ordinary  sense  of  that  word  and  as  it  is  used 
in  the  constitution.  They  are  not  in  any  proper  sense  fees  or 
costs  assessed  impartially  or  with  regard  to  the  expense  occasioned 
or  services  performed.  The  amounts  are  regulated  wholly,  but 
arbitrarily,  with  regard  to  the  value  of  the  estate.  They  have  no 
proximate  relation  to  the  amount  of  the  compensation  to  be  paid 
to  the  probate  judge,  nor  to  the  other  expenses  of  the  court,  nor 
to  the  nature  or  extent  of  the  services  wliich  may  become  necessary 
in  the  proceedings.  There  is  no  necessary,  natural  or  even  probable 
correspondence  between  the  sums  to  be  paid  (widely  different  in 
amounts  with  respect  to  estates  of  different  values)  and  the  nature 


288  COOK    COUNTY    V.    FAIRBANK.  [cilAP.    III. 

of  the  proceedings,  or  the  character  or  extent  of  the  services  which 
may  be  required  in  the  probate  court." 

And  Fat  jo  v.  Pfister,  117  Cal.  83,  was  an  action  in  which  the 
clerk  of  the  superior  court  of  Santa  Clara  county  was  sought  to  be 
coerced  to  file  an  inventory  and  appraisement,  which  he  had  refused 
to  do  until  the  sum  of  $200  was  paid  him  as  fees.  The  statute 
required  the  payment  of  $5  on  the  filing  of  the  petition  for  letters 
of  administration,  also  an  additional  payment  of  one  dollar  for 
each  $1000  of  the  appraised  valuation  of  the  estate  in  excess  of 
$3000,  as  shown  by  the  inventor}-  and  appraisement.  The  Supreme 
Court  held  the  charge  to  be  a  tax,  saying  (p.  85)  :  "It  is  perfectly 
plain  that  the  legislature  has  attempted,  by  that  portion  of  sec- 
tion 1  above  quoted,  to  levy  a  property  tax  upon  all  estates  of  de- 
cedents, infants  and  incompetents.  The  ad  valorem  charge  for 
filing  the  inventory  is  in  no  sense  a  fee  or  compensation  for  the 
services  of  the  officer,  which  are  the  same,  as  respects  this  matter, 
in  every  estate,  large  or  small.  To  call  it  a  fee  is  a  transparent 
evasion." 

If  the  General  Assembly,  under  the  guise  of  a  docket  fee,  has 
attempted,  as  we  think  it  is  apparent  it  has,  to  levy  a  property  tax 
upon  all  estates  of  deceased  persons,  infants,  idiots,  insane  persons, 
lunatics,  distracted  persons,  drunkards  and  spendthrifts  whose 
estates  exceed  the  amounts  designated  in  said  statute  and  which 
are  brought  into  the  probate  court  of  counties  of  the  third  class, 
then  the  paragraph  attempting  to  impose  said  tax  is  clearly  uncon- 
stitutional for  numerous  reasons  other  than  that  pointed  out  above. 
First,  it  violates  section  13  of  article  4  of  the  constitution  of  this 
State,  because  it  embraces  more  than  one  subject  and  subjects  that 
are  not  included  in  its  title ;  second,  it  violates  section  3  of  article  9 
of  the  constitution,  in  that  it  provides  for  exemptions  of  property 
from  taxation  not  specified  in  said  section;  third,  it  subjects  the 
property  of  the  estate  to  double  taxation,  as  it  appears  that  the  ex- 
ecutors had  paid  all  the  taxes  due  upon  the  real  and  personal  prop- 
erty of  the  estate  in  the  years  1902  and  1903 ;  and  fourth,  it  violates 
section  1  of  article  9  of  the  constitution,  in  this :  that  a  tax  is  levied 
which  is  not  equal  or  uniform  as  to  the  class  upon  which  it  operates. 

Nor  can  the  charge  or  burden  imposed  be  sustained  upon  the 
ground  that  it  amounts  to  no  more  than  an  inheritance  or  succession 
tax.  The  contention  that  it  does  amount  to  such  tax  is  fully  met 
by  the  fact  that  the  statute  in  express  terms  applies  not  only  to  the 
estates  of  deceased  persons,  but  also  to  the  estates  of  infants,  idiots, 
insane  persons,  lunatics,  distracted  persons,  drunkards  and  spend- 
thrifts. The  tax  here  imposed  is  levied  upon  the  body  of  the  entire 
estate  if  it  exceeds  $2000  in  value,  whether  the  estate  is  solvent  or 
insolvent,  while  an  inheritance  or  succession  tax  is  imposed,  not 
as  a  tax  upon  the  estate,  but  upon  the  right  of  succession.  (Kocher- 
sperger  v.  Drake,  167  111.  122;  Magoun  v.  Illinois  Trust  and  Savings 
Bank,  170  U.  S.  283.)  In  the  Fat  jo  case  the  Supreme  Court  of 
California  said  upon  this  branch  of  the  case:  "And  it  is  not  merely 
an  inheritance  tax  or  at  all  analogous  to  an  inheritance  tax,  as 


CHAP.    III.]  COOK     COUNTY     V.     FAIRBANK.  289 

counsel  would  contend,  for,  in  the  first  place,  it  applies  not  only  to 
the  estates  of  decedents,  but  also  to  the  estates  of  minors  and  in- 
competents under  guardianship;  and  as  to  the  estates  of  decedents, 
it  applies  not  to  the  distributable  residue  after  payment  of  debts 
and  expenses  of  administration,  but  to  the  whole  body  of  the  estate, 
and  would  be  collectible,  if  the  law  were  valid,  from  an  insolvent 
estate  as  well  as  from  one  of  equal  appraised  value  and  with  no 
liabilities/'  And  in  State  v.  Case,  supra,  the  Supreme  Court  of 
Washington,  in  reviewing  two  cases  cited  in  support  of  the  con- 
stitutionality of  the  statute  under  consideration  in  that  case,  said 
(p.  155):  "Neither  of  said  cases  relates  to  property  taxation. 
The  first  discusses  the  Inheritance  Tax  law,  and  expressly  holds 
that  such  a  tax  is  not  a  property  tax  but  is  a  mere  charge  for  the 
privilege  of  succession  to  the  ownership  and  enjoyment  of  property, 
following  Magoun  v.  Illinois  Trust  and  Savings  Bank,  170  U.  S. 
283,  (42  L.  ed.  1037,  18  Sup.  Ct.  Rep.  594,)  which  expressly  dis- 
tinguished such  a  charge  from  property  taxes,  which  must  be  uniform 
and  equal  under  the  State  constitutions." 

It  is  urged  bv  appellant  that  this  court,  in  the  case  of  People  v. 
Hinrichsen,  161  111.  223,  is  committed  to  the  view  that  the  statute 
fixing  the  fees  of  the  Secretary  of  State  for  incorporating  corpora- 
tions, which  are  graduated  according  to  the  amount  of  the  capital 
stock  of  the  corporation,  is  a  valid  exercise  of  legislative  power. 
We  are  of  the  opinion  there  is  a  well  marked  line  of  distinction  be- 
tween the  Hinrichsen  case  and  the  case  at  bar.  It  is  the  same  line 
of  demarkation  pointed  out  in  the  inheritance  tax  cases  heretofore 
referred  to.  An  inheritance  tax  was  sustained  on  the  ground  that 
it  was  not  a  tax  upon  property  but  upon  the  right  of  succession, 
and  that  the  State  had  the  right  to  prescribe  rules  of  descent  and 
conditions  upon  which  property  should  be  inherited.  So  with 
the  right  of  the  State  to  establish  fees  in  cases  of  persons  desiring 
to  organize  corporations.  A  corporation  is  a  creation  of  the  legis- 
lature. Persons  are  not  obliged  to  incorporate  against  their  will. 
If,  however,  they  do  incorporate  they  must  accept  the  burdens  im- 
posed upon  them  by  general  law.  Such,  however,  is  not  the  case 
with  the  statute  authorizing  the  collection  of  the  docket  fee  men- 
tioned in  the  statute  now  under  consideration.  That,  as  was  said 
by  Judge  Cassoday  in  State  v.  Mann,  supra,  "  is  nothing  less  than 
a  charge  imposed  by  the  legislature  as  a  condition  precedent  to 
allowing  the  county  court  to  proceed  with  the  administration  of 
this  estate." 

Our  conclusion  is,  that  the  paragraph  of  the  statute  of  1879 
authorizing  tiie  collection  of  a  docket  fee  is  unconstitutional  and 

void, 

Judgnieni  affirmed. 


290  ADAMS  MOTOR   CO.    V.    CLER.  [cHAP.    III. 


ADAMS  MOTOR  CO.  v.  CLER. 
Supreme  Court  of  Georgia.     1920. 

[Reported  149  Oa.  818.] 

Beck,  P.  J.  1.  The  section  of  the  general  tax  act  passed  by  the 
General  Assembly  of  Georgia  in  the  year  1918,  which  the  plaintiffs 
contend  is  invalid  because  it  violates  certain  provisions  of  the  State 
and  Federal  constitutions,  is  in  the  following  language :  "  12th. 
Automobiles.  Upon  every  agent  of,  and  upon  every  dealer  in, 
and  upon  every  person  soliciting  orders  for  the  sale  of  automobiles, 
the  sum  set  out  below,  viz. :  In  each  county  for  each  make  of 
such  vehicle  only  one  such  tax  for  such  make  for  each  agency  to 
be  taxed  in  any  one  county.  Any  agency  having  paid  such  tax 
to  be  allowed  any  number  of  employees  within  the  county  wherein 
such  tax  has  been  paid,  free  from  such  liabilities.  Provided,  that 
any  person,  firm,  or  corporation  paying  this  tax  shall  be  permitted 
to  resell  any  automobile  or  other  vehicle  taken  in  exchange  for 
automobiles,  without  the  payment  of  additional  tax.  In  each 
county  with  a  population  of  less  than  30,000,  $37.50.  In  each 
county  with  a  population  of  between  20,000  and  30,000,  $55.00. 
In  each  county  with  a  population  of  between  30,000  and  50,000, 
$83.50.  In  each  county  with  a  population  of  between  50,000  and 
75,000,  $110.00.  In  each  county  with  a  population  of  between 
75,000  and  100,000,  $165.00.  In  each  county  with  a  population 
of  between  100,000  and  150,000,  $230.00.  In  each  county  with  a 
population  exceeding  150,000,  $275.00." 

The  soundness  of  the  criticisms  upon  this  act  depends  upon 
whether  the  section  in  question  makes  an  arbitrary  and  unreason- 
able classification  of  dealers  in  automobiles  subject  to  the  tax  en- 
closed by  this  section.  After  careful  consideration  of  the  sub- 
ject of  this  inquiry  it  does  not  seem  to  us  that  the  legislature,  in 
exercising  its  right  to  make  a  classification  for  the  purpose  of 
imposing  a  tax  like  that  in  question,  has  acted  arbitrarily  and  un- 
reasonably. It  is  settled  law  that  a  tax  upon  a  business  is  not  a 
tax  upon  property  within  the  meaning  of  the  ad  valorem  and  uni- 
formity clauses  of  the  constitution,  and  it  is  not  a  valid  objection 
that  another  business  or  object  is  not  taxed  or  is  taxed  a  dif- 
ferent amount.  The  requirement  of  this  kind  of  classification 
is  that  it  shall  be  uniform  upon  all  business  of  the  same  class. 
Weaver  v.  State,  89  Ga.  fi39  (15  S.  E.  840),  and  cases  there  cited. 
Under  the  provisions  of  the  section  of  the  tax  act  in  question,  the 
classification  is  made  with  reference  to  the  population  of  the  county 
within  which  the  business  is  carried  on.  4"^  to  fix  the  amount  of 
the  tax  according  to  the  population  of  a  county  is  fixing  it  with 
reference  to  a  fact  that  is  not  arbitrarily  chosen,  but  has  some 
relation  to  the  question  of  the  amount  of  tax  that  would  be  right 
and  proper.    If  the  amount  of  tax  fi.xed  had  to  be  precisely  adjusted 


CHAP.  HI.]  ada:ms  motor  CO.  r.  cleu.  291 

80  as  to  impose  tlie  same  burden  upon  every  dealer  in  proportion 
to  the  amount  of  business  done  or  the  opportunity  for  doing  busi- 
ness, it  wouhl  be  extremely  difticult,  if  not  impossible,  to  select 
any  fact  or  standard  by  which  the  classification  could  be  made. 
The  only  requirement  is  that  the  fact  selected  for  the  classification 
under  which  a  tax  like  that  in  question  is  imposed  sball  not  be 
arbitrary,  but  shall  bear  a  reasonable  relation  to  tlie  tax  imposed 
upon  the  business.  It  may  be  true  that  a  county  with  less  than 
20,000  population  may  in  some  cases  afford  a  more  profitable  field 
for  the  conduct  of  business  than  an  adjoining  county  having  a 
population  of  30,000;  but  it  cannot  be  held  that  the  legislature 
in  enacting  the  provision  in  question  could  not  decide  that  there 
was  a  reasonable  relation  between  the  population  of  a  county  and 
the  amount  of  business  of  a  given  character  carried  on  in  that 
county. 

Another  ground  taken  by  the  plaintiffs  is  that  the  classification 
between  dealers  who  deal  in  one  make  of  automobiles  and  dealers 
who  sell  more  than  one  make,  without  reference  to  the  value  of  the 
automobile  sold,  is  arbitrary,  discriminatory,  and  imrecosonable. 
And  again  we  must  reply  that  the  fact  selected  by  the  legislature 
as  a  ground  for  classification  bears  an  actual  relation  to  the  classi- 
fication made.  As  we  said  in  discussing  the  other  ground  of  attack 
upon  the  act,  it  may  not  precisely  fix  an  amount  adjusted  to  the 
amount  of  business  that  will  be  done  by  dealers  in  different  classes, 
but  it  is  a  fact  that  might  reasonably  be  taken  into  consideration 
in  determining  the  tax  to  be  imposed.  In  the  case  of  Sawtell  v. 
Atlanta,  138  Ga.  687  (75  S.  E.  982),  an  ordinance  of  the  City 
of  Atlanta,  imposing  a  tax  of  a  fixed  amount  upon  all  ice  houses, 
ice  manufacturers,  or  agencies  not  employing  more  than  five  wagons 
for  selling  or  delivery  purposes,  and  for  each  additional  wagon 
above  the  number  of  five  an  additional  tax  of  $10,  was  held  to  be 
not  invalid  on  the  ground  that  it  violated  the  constitutional  pro- 
vision that  all  taxes  must  be  uniform  upon  the  same  class  of 
subjects.  Under  the  ordinance  there  attacked,  if  the  ice  house 
employed  one  or  five  wagons,  the  tax  was  $50;  but  if  it  employed 
more  than  five  wagons  there  was  an  additional  tax  of  $10  for 
each  additional  wagon.  And  in  the  case  of  Witham  v.  Stewart, 
129  Ga.  48  (58  S.  E.  463),  it  was  said:  "Section  2,  par.  2,  of 
the  act  of  the  General  Assembly,  approved  December  16th,  1902 
(A.  '02,  p.  19),  provides  that  a"*  specific  tax'  of  $10,  for  each  of 
the  fiscal  years  1903  and  1904,  shall  be  levied  'upon  the  presidents 
of  each  of  the  express,  telegraph,  steamboat,  railroad,  street-rail- 
road, telephone,  electric-light,  sleeping  and  palace-car  companies, 
banks,  building  and  loan  associations,  and  gas  companies  doing 
business  in  this  State.'  Held,  that  under  the  provisions  of  said 
act,  where  it  appears  that  the  same  person  is  the  president  of  two 
or  more  banks,  a  tax  of  $10  may  be  collected  from  such  person  for 
each  bank  of  wliich  he  is  president.  It  ajipearing  in  the  present 
case  that  the  plaintiff  in  error  was  tlie  jiresident  of  several  banks 
doing  business  in  this  State,  he  was  liable  to  be  taxed  in  the  amount 


292  ADAMS    MOTOR    CO.     r.    CI.ER.  [cHAT.    III. 

specified  in  the  above  act  for  each  bank  of  which  he  was  the  presi- 
dent." 

2.  There  is  no  merit  in  the  contention  that  the  classification 
was  arbitrary,  discriminatory,  and  imreasonable  because  of  the 
provision  permitting  any  person  who  lias  paid  the  tax  to  resell 
any  automobile  taken  in  exchange  for  an  automobile  without  the 
pannent  of  an  additional  tax. 

The  act  in  question  not  being  invalid  for  any  of  the  reasons  set 
fortli  above,  it  follows  that  it  is  not  in  violation  of  the  due-process 
clause  of  the  State  and  Federal  constitutions. 

Judguient  affirmed.    All  the  Justices  concur. 


CHAr.    IV.]  MOORE     V.     EUCKGABER.  293 


CHAPTER   IV. 

IMIKKITANXE  TAX. 

MOORE  V.  RUCKGABER. 
Supreme  Court  of  the  United  States.    1902. 

[Reported  184  V.  8.  593.] 

TTiTi=;  was  also  an  action  broii<^ht  in  the  Circuit  Court,  for  the 
Southern  District  of  New  York  by  Ruckgaber,  as  e.xecutor  of  the 
last  will  and  testament  of  Louisa  Augusta  Ripley-Pinede,  against 
the  Collector  of  Internal  Revenue,  to  recover  an  inheritance  tax 
paid  to  the  defendant  upon  certain  personal  property  in  the  city  of 
New  York.    It  was  argued  with  Eidman  v.  Martinez,  184  U.  S.  578. 

The  material  facts,  as  set  forth  in  the  certificate,  are  briefly  as 
follows : 

The  testatrix,  Louisa  Augusta  Ripley-Pinede,  died  at  Zurich, 
Switzerland,  on  September  25,  1898,  being  at  that  time  a  non-res- 
ident of  the  United  States,  and  having,  for  at  least  eight  years 
immediately  preceding  her  death,  been  domiciled  in,  and  a  perma- 
nent resident  of,  the  Republic  of  France.  She  left  a  will  dated  No- 
vember 6,  1890,  which  was  made  in  New  York  and  in  conformity  to 
the  laws  of  that  State,  wliere  the  testatri.x  was  then  sojourning, 
whereby  she  bequeathed  all  her  personal  property  in  the  United 
States  to  her  daughter,  Carmelia  von  Groll,  who  was  then,  and  is 
now,  also  a  non-resident  of  the  United  States,  domiciled  in  Germany. 
Said  will  was  probated  in  the  Surrogate's  Court  of  Kings  County, 
New  York,  on  February  17,  1899,  and  letters  testamentary  were 
thereupon  issued  to  the  defendant  in  error,  a  resident  of  said  county 
and  State,  who  alone  qualified  as  executor. 

At  the  time  of  her  death  the  testatrix  owned  a  claim  in  account 
current  against  one  Carl  Goepel  and  one  ^lax  Ruckgaber,  Jr.,  con- 
stituting the  firm  of  Schulz  &  Ruckgaber,  both  of  whom  resided  in 
the  county  of  Kings  and  State  of  New  York.  She  was  also^the 
owner  of  a  share  of  stock  in  The  Tribune  Association,  a  New  York 
corporation.  The  testatrix  was  also  the  owner  of  bonds  and  coupons 
of  divers  American  corporations  hereinafter  particularly  described. 
Said  chose  in  action,  stock,  bonds  and  certificate  constituted  all  the 
personal  propertv  of  every  kind  in  the  United  States  of  America 
referred  to  in  the  said  will.  The  value  of  the  said  property  of  the 
testatrix  at  the  date  of  her  death,  September  25,  1898,  as  fixed  and 
determined  bv  appraisers  dulv  appointed,  was  $105,670.70.  On  or 
about  the  15th  dav  of.  June,  1899,  upon  the  written  demand  of  the 
collector  of  internal  revenue  for  the  first  district  of  New  York,  and 
under  protest  the  executor  did  -make  and  render  in  duplicate  to  the 


294  MOOKE    v.    KUCK(iABEK.  [CHAP.    IV. 

said  collector  a  return  of  legacies  arising  from  personal  property  of 
every  kind  whatsoever,  being  in  charge  of  trust  of  said  executor, 
passing  from  Louisa  Augusta  Eipley-Pinede  to  her  said  daughter  by 
her  will  as  aforesaid. 

The  following  questions  of  law  which  arose  out  of  the  foregoing 
facts  were  certilied  to  this  court: 

"  1.  Can  the  said  personal  property  of  the  non-resident  testatrix, 
Louisa  Augusta  Kipley-Pinede,  actually  located  within  the  United 
States  at  the  time  of  her  death,  September  25,  1898,  be  deemed  to 
have  a  siiu^s  in  the  United  States  for  the  purpose  of  levying  a  tax 
or  duty  upon  the  transmission  or  receipt  thereof  under  sections  29, 
30  and  31  of  the  act  of  Congress  entitled  '  An  act  to  provide  ways 
and  means  to  meet  war  expenditures,  and  for  other  purposes,'  ap- 
proved June  13,  1898?" 

"  2.  Was  the  transmission  or  receipt  of  the  said  personal  prop- 
erty of  the  non-resident  testatrix,  Louisa  Augusta  Eipley-Pinede, 
which  was  actually  located  in  the  United  States  at  the  time  of  her 
death,  September  25,  1898,  subject  to  taxation  under  sections  29, 
30  and  31  of  the  act  of  Congress  entitled  'An  act  to  provide  ways 
and  means  to  meet  war  expenditures,  and  for  other  purposes,'  ap- 
proved June  13,  1898?" 

Brown,  J.  This  case  differs  from  the  one  just  decided  only  in 
the  fact  that  the  will  of  the  non-resident  testatrix  was  executed  in 
iSTew  York,  November  6,  1890,  during  a  temporary  sojourn  there, 
although,  as  in  the  preceding  case,  the  testatrix  was  domiciled 
abroad,  and  bequeathed  her  personal  property  in  New  York  to  a 
daughter,  who  was  married,  and  also  lived  abroad. 

There  can  be  no  doubt  whatever  that,  if  Madame  Pinede  had 
died  intestate,  the  personal  property  would  not  have  passed  by 
the  law  '"'of  any  State  or  Territory,"  (using  the  words  of  the 
act,)  but  by  the  laws  of  France.  The  question  then  is,  whether 
the  condition  is  changed,  if  the  property  pass  under  a  will  executed 
in  this  country.  In  the  United  States  v.  Hunnewell,  13  Fed.  Rep. 
617,  cited  in  the  preceding  case,  the  will  was  executed  in  France, 
but  the  decision  of  Mr.  Justice  Gray,  holding  that  the  tax  was  not 
payable,  was  not  put  upon  the  ground  that  the  will  was  executed 
in  a  foreign  country,  but  upon  the  broader  ground  that  the  legacy 
duty  was  payable  only  upon  the  estate  of  persons  domiciled  within 
the  United  States.  In  delivering  the  opinion  he  observed :  "  Sec- 
tion 124"  (of  the  similar  act  of  1864)  "imposes  a  duty  on  legacies 
or  distributive  shares  arising  from  personal  property  '  passing  from 
any  person  possessed  of  such  property,  either  by  will,  or  by  the 
intestate  laws  of  any  State  or  Territory;'  it  does  not  make  the  duty 
payable  when  'the  person  possessed  of  such  property'  dies  tes- 
tate, if  it  would  not  be  payable  if  such  person  died  intestate;  and 
if  Madame  de  la  Valette  had  died  intestate,  her  son  would  not 
have  taken  a  distributive  share  'by  the  intestate  laws  of  any  State 
or  Territory,'  but,  if  at  all,  by  the  law  of  France,  the  domicil  of 
his  mother  at  the  time  of  her  death.  And  section  125,  by  requir- 
ing the  executor  or  administrator  to  pay  the  amount  of  this  duty 


CHAP.    IV.]  MOOUE     V.     RUCKGABER,  295 

to  the  collector  or  deputy  collector  of  the  district  of  which  the 
deceased  jjersoii  was  a  resident,  leads  to  the  same  conclusion." 

The  real  question  then  is,  as  said  by  Mr.  Justice  Gray,  whether 
the  act  makes  the  duty  payable  when  the  person  posse.ssed  of 
such  property  dies  testate,  if  it  would  not  be  payable  if  such  per- 
son (lied  intestate,  although  the  actual  question  involved  in  this 
case  differs  from  the  one  there  involved,  in  the  fact  that  in  the 
Ifurmewell  case  the  will  was  executed  abroad,  while  in  the  present 
case  it  was  executed  in  this  country. 

Beaiirig  in  mind  tJie  fact  that  the  tax  in  this  case  is  not  upon 
the  property  itself,  but  upon  the  transmission  or  devolution  of 
such  property,  the  (juestion  again  recurs,  as  it  did  in  the  preceding 
case,  whether  the  succession  took  effect  in  France  or  in  New  York. 
We  are  aided  in  the  solution  of  this  problem  by  the  language  of 
section  2694  of  the  New  York  Code  of  Civil  Procedure,  also  cited 
in  the  preceding  case,  which  is  as  follows :  "  Except  where  special 
provision  is  otherwise  made  by  law,  the  validity  and  effect  of  a 
testamentary  disposition  of  any  other"  (than  real)  "property  sit- 
uated within  the  State,  and  the  ownership  and  disposition  of  such 
property  where  it  is  not  disposed  of  by  will,  are  regulated  by  the 
laws  of  the  State  or  country  of  which  the  decedent  was  a  resident 
at  the  time  of  his  death."  Now  as,  if  Madame  Pinede  had  died 
without  leaving  a  will,  her  property  would  have  passed  under  the 
intestate  laws  of  France  and  been  exempt  from  this  tax,  it  follows 
under  the  Ilunnewell  case  that  it  is  equally  exempt  though  it  passed 
by  will. 

The  will  of  Madame  Pinede  is  confined  to  her  personal  property 
in  this  country,  and  the  record  does  not  show  whether  she  was 
possessed  of  other  property  in  France  or  in  any  other  foreign 
country.  If  she  had,  that  property  would  either  pass  by  will  ex- 
ecuted there  or  under  the  intestate  laws  of  her  domicil.  For  reasons 
stated  in  the  prior  opinion,  we  do  not  think  Congress  contemplated 
by  this  act  that  the  estates  of  deceased  persons  should  be  split  up 
for  the  purposes  of  distribution  or  taxation,  but  that,  so  far  as  re- 
gards personal  ])roperty,  the  law  of  the  domicil  should  prevail. 

A  question  somewhat  to  the  converse  of  this  arose  in  the  Estate 
of  Romaine,  127  N.  Y.  80,  which  was  a  proceeding  to  compel  pay- 
ment of  an  inheritance  tax  by  the  administrator  of  the  estate  of 
Komaine,  who  had  died  intestate  in  Virginia,  leaving  a  brother 
and  sister  resident  in  New  York,  as  his  next  of  kin.  The  act  of  1887 
subjected  to  an  inheritance  tax  "all  property  which  shall  pass  by 
will  or  by  the  intestate  Jaws  of  this  State,  from  any  person  who 
may  die  seized  or  possessed  of  the  same  while  a  resident  of  this 
State,  or  if  such  decedent  was  not  a  resident  of  this  State  at  the 
time  of  his  death,  which  property  or  any  part  thereof  shall  be  within 
this  State."  The  question  was  whether  the  property  of  Pomaine, 
who  died  in  Virginia  intestate,  was  subject  to  the  tax.  After  decid- 
ing that  the  tax  applied  to  two  classes,  namely,  resident  and  non- 
resident decedents,  the  court  observed :  "  But  does  it  apply  to  all 
persons  belonging  to  these  two  classes?     It   is  not  denied  that  it 


296  MATTER    OF    CUMMIXGS.  [ciIAP.    IV. 

applies  to  all  resident  decendents,  and  to  all  non-rosident  testators, 
but  it  is  contended  that  it  does  not  apply  to  non-resident  intestates 
because  propert}'  *  which  shall  pass  ...  by  the  intestate  laws  of 
this  State '  is  expressly  mentioned  to  the  implied  exclusion  of  prop- 
erty passing  by  the  intestate  laws  of  other  States.  This  is  the 
position  of  the  appellant,  whose  learned  counsel  claims  that  the  act, 
in  its  present  form,  was  designed  to  meet  cases  of  succession  by  will, 
but  not  of  succession  by  intestacy,  unless  the  intestate  was  a  resident 
of  tills  State.  It  is  ditheult,  however,  to  see  why  the  legislature 
should  discriminate  simply  for  the  purposes  of  taxation  between 
the  property  of  a  non-resident  decedent  who  made  a  will,  and  of 
one  who  did  not.  It  is  not  probable  that  there  was  an  intention  to 
tax  the  estates  of  non-resident  testators  and  to  exempt  those  of 
non-resident  intestates,  because  there  is  no  foundation  for  such  a 
distinction.  .  .  .  Property  of  the  same  kind,  situated  in  the  same 
place,  receiving  the  same  protection  from  the  law,  and  administered 
upon  in  the  same  wa_y,  would  naturally  be  required  to  contribute 
toward  the  expenses  of  government  upon  the  same  basis,  regardless 
of  whether  its  last  o\^Tier  died  testate  or  intestate," 

By  parity  of  reasoning,  we  think  it  follows  that  no  discrimination 
was  intended  to  be  made  between  non-residents  who  died  testate, 
even  though  the  will  were  made  in  this  country,  and  those  who 
died  intestate;  and  as  we  have  held  in  the  preceding  case  that  the 
law  does  not  apply  to  non-residents  who  died  intestate,  or  testate 
under  a  will"  executed  abroad,  we  think  it  follows  that  it  does  not 
apply  to  deceased  persons  domiciled  abroad  who  left  property  by 
will  executed  in  this  country. 

The    cjuestions    certified    must,    therefore,    he    answered   in    the 
negative. 


MATTER  OF  CUMMINGS. 

Surrogate's  Court,  New  York  Couxty.     1909. 

[Reported  63  N.  Y.  Misc.   621.] 

CoHALAN,  Surrogate.  Appeal  from  an  order  fixing  the  tax.  The 
decedent  made  a  wall  by  which  he  appointed  the  Merchants'  Loan 
and  Trust  Company  of  Los  Angeles,  California,  his  executor,  as 
to  so  much  of  his  property  as  was  situated  in  that  State,  He  ap- 
pointed the  Farmers'  Loan  and  Trust  Company  of  New  York  his 
executor  as  to  so  much  of  his  property  as  was  situated  in  this  State, 
He  died  in  1904.  Shortly  after  his  death,  a  proceeding  was  brought 
in  the  Superior  Court  of  Los  Angeles,  California,  for  the  probate 
of  his  will.  That  court  decided  that  the  decedent  was  a  resident  of 
the  State  of  California;  that  certain  provisions  of  the  will  creating 
trust  funds  were  invalid,  and  that  that  part  of  the  property  which 
was  located  in  California  and  designated  in  the  will  as  constituting 
a  part  of  the  trust  fund  should  be  distributed  to  his  next  of  kin, 
in  accordance  with  the  intestate  laws  of  California,     The  property 


CirAP.    IV.]  MATTEK    OF    CL'MMINGS.  297 

located  in  California  \ras  subsequently  distributed  among  decedent's 
next  of  kin,  in  the  manner  jjrovided  by  this  decree,  and  in  the  pro- 
])orti()n  prescribed  by  the  intestate  laws  of  California.  In  1900,  the 
Farmers'  Loan  and  Trust  Company,  as  executor  in  this  .State,  com- 
menced a  ])roceeding  in  the  New  York  Supreme  Court  for  the 
construction  of  decedent's  will.  The  court  decided  that  the  decedent 
was  a  resident  of  the  State;  that  the  provisions  of  his  will  attempting 
to  create  certain  trust  funds  were  invalid,  and  that  such  property 
should  be  distributed  in  accordance  with  the  intestate  laws  of  this 
State.  In  the  proceeding  instituted  by  the  New  York  executor 
to  appraise  the  estate,  in  accordance  with  the  provisions  of  the  Trans- 
fer Tax  Act,  the  appraiser  included  in  the  taxable  assets  of  the 
estate  all  the  property  of  decedent  which  was  situated  in  California, 
and  which,  under  the  decree  of  tlie  Superior  Court  of  Los  Angeles, 
had  been  distributed  among  decedent's  next  of  kin.  The  executor 
contends  that  the  transfer  of  that  property  is  not  taxal)le  here  and 
has  appealed  from  the  order  entered  upon  said  report.  Section  220 
of  the  Transfer  Tax  Law  provides :  "  A  tax  shall  be  and  is  hereby 
imposed  upon  the  transfer  of  any  property  .  .  .  first,  when  the  trans- 
fer is  by  will  or  by  the  intestate  laws  of  this  State  from  any  person 
dying  seized  or  possessed  of  the  property  while  a  resident  of  this 
State."  Before  the  tax  can  be  imposed  there  must  be  a  transfer 
of  the  property,  either  by  will  or  by  the  intestate  laws  of  this  State. 
Assuming,  in  accordance  Avith  the  decision  of  the  New  York  Su- 
preme Court,  that  the  decedent  was  a  resident  of  this  State,  if  that 
part  of  his  personal  property  which  was  situated  in  California  passed 
or  was  transferred  to  his  next  of  kin  by  virtue  of  the  intestate  laws 
of  this  State,  such  a  transfer  would  be  taxable  here.  Matter  of 
Swift,  137  N.  Y.  77.  But,  at  the  time  the  New  York  court  decided 
that  he  was  a  resident  of  this  State,  the  property  located  in  Cali- 
fornia had  already  been  distributed  under  and  by  virtue  of  a  de- 
cree of  a  court  of  competent  jurisdiction  in  that  State  and  in  the 
proportion  prescribed  by  the  intestate  laws  of  that  State.  The  prop- 
erty having  already  been  actually  transferred  under  the  intestate 
laws  of  the  State  of  California,  there  was  no  property  there  which 
could  be  transferred  under  the  intestate  laws  of  this  State.  The 
theory  that  the  property  passed  under  the  intestate  laws  of  this 
State  must  give  way  to  the  fact  that  it  was  actually  transferred 
imder  the  intestate  laws  of  the  State  of  California.  The  Superior 
Court  of  Los  Angeles  being  a  court  of  competent  jurisdiction,  its 
decree  was  entitled  to  full  faith  and  credit  in  this  court.  Tilt  r. 
Kelsey,  207  U.  S.  43.  Therefore,  as  the  decedent's  property  in  Cali- 
fornia was  not  transferred  to  his  next  of  kin  by  virtue  of  the  intestate 
laws  of  this  State,  the  courts  of  this  State  have  no  jurisdiction  to 
impose  a  tax  upon  the  transfer  of  such  property.  The  order  fixing 
the  tax  should  be  reversed  and  the  report  remitted  to  the  appraiser 
for  the  purjiose  of  excluding  from  tlio  taxable  assets  of  the  estate 
the  value  of  decedent's  property  situated  in  California. 

Decreed  accordinghj. 


298  MAXWELL    V.    BUGBEE.  [cHAP.    IV, 


MAXWELL  V.  BUGBEE. 
Supreme  Court  of  the  United  States.     1919. 

[Reported  250  U.  8.  525.] 
Day,  J.  These  cases  were  cargued  and  submitted  together,  in- 
volve the  same  constitutional  questions,  and  may  be  disposed  of 
in  a  single  opinion.  The  attack  is  upon  the  inheritance  tax  law 
of  the  State  of  New  Jersey,  and  is  based  upon  certain  provisions 
of  the  Federal  Constitution.  The  statute  has  reference  to  the 
method  of  imposing  inheritance  taxes  under  the  laws  of  the  State. 
The  constitutionality  of  the  law  upon  botli  state  and  federal  grounds 
was  upheld  in  the  McDonald  case  by  the  Court  of  Errors  and  Ap- 
peals, 90  N.  J.  L.  707.  In  the  Hill  case  the  judgment  of  the  Su- 
preme Court  of  New  Jersey  (91  N.  J.  L.  454)  was  affirmed  by 
the  Court  of  Errors  and  Appeals,  92  N.  J.  L.  514. 

The  statute  under  consideration  is  an  act  approved  April  9,  1914 
(P.  L.  1914,  p.  267),  being  an  amendment  to  an  act  approved 
April  20,  1909  (P.  L.  1909,  p.  325),  for  taxing  the  transfer  of 
property  of  resident  and  non-resident  decedents  by  devise,  bequest, 
descent,  etc.,  in  certain  cases.  The  1909  act  is  found  in  4  Comp. 
Stats.  N.  J.,  p.  5301,  et  seq.,  the  amendment  in  1  Supp.  Comp. 
Stats.  N.  J.,  pp.  1538-1542.  The  act  of  1909,  in  its  first  section, 
imposed  a  tax  upon  the  transfer  of  any  property,  real  and  personal, 
of  the  value  of  $500  or  over,  or  of  any  interest  therein  or  income 
therefrom,  in  trust  or  otherwise,  to  persons  or  corporations,  includ- 
ing the  following  cases : 

"First.  When  the  transfer  is  by  will  or  by  the  intestate  laws 
of  this  State  from  any  person  dying  seized  or  possessed  of  the 
property  while  a  resident  of  the  State. 

"  Second.  When  the  transfer  is  by  will  or  intestate  law,  of  prop- 
erty within  the  State,  and  the  decedent  was  a  non-resident  of  the 
State  at  the  time  of  his  death." 

The  taxes  thus  imposed  were  at  the  rate  of  5  per  cent,  upon  the 
clear  market  value  of  the  property,  with  exemptions  not  necessary 
to  be  specified,  and  were  payable  to  the  treasurer  for  the  use  of  the 
State  of  New  Jersey. 

And  by  §  12  it  was  provided  that  upon  the  transfer  ot  property 
in  that  State  of  a  non-resident  decedent,  if  all  or  any  part  of  the 
estate,  wherever  situated,  passed  to  persons  or  corporations  who 
would  have  been  taxable  under  the  act  if  the  decedent  had  been  a 
resident  of  the  State,  such  property  located  within  the  State  was 
made  subject  to  a  tax  bearing  tlie  same  ratio  to  the  entire  tax  which 
the  estate  of  such  decedent  wouhl  have  been  subject  to  under  the  act 
if  the  non-resident  decedent  had  been  a  resident  of  the  State,  as 
the  property  located  in  the  State  bore  to  the  entire  estate  of  such 
non-resident   decedent  wherever  situated. 


CIIAI'.    1\'.]  MAXWKl.I.    L\    J5L'GBEE.  299 

The  act,  having  first  been  amended  by  an  act  approved  March 
2G,  l!n4  (P.  L.  1!)14,  p.  91),  not  necessary  to  be  recited,  was 
again  amended  by  the  act  approved  April  9,  1914,  which  is  now 
under  consideration  (P.  L.  1914,  p.  2G7;  1  Supp.  Comp.  Stats. 
N.  J.,  pp.  1538-1542).  Sections  1  and  12  were  amended,  the 
former  by  confining  the  tax  on  the  transfer  of  property  within  the 
State  of  non-resident  decedents  to  real  estate,  tangible  personal 
property,  and  shares  of  stock  of  Xew  Jersey  corporations  and  of 
national  banks  located  within  the  State;  and  by  modifying  the 
former  rate  of  5  per  centum  uj)on  the  clear  market  value  of  the 
property  passing,  which  was  subject  to  exemptions  in  favor  of 
churches  and  other  charitable  institutions,  and  of  parents,  children, 
and  other  lineal  descendants,  etc.,  by  making  5  per  centum  the 
appli(!able  rate  but  subject  to  numerous  exceptions,  and  in  the  ex- 
cepted cases  imposing  different  rates,  dependent  upon  the  relation- 
ship of  the  beneficiary  to  the  deceased  and  the  amount  of  the  prop- 
erty transferred.  Thus,  "  Property  transferred  to  any  child  or 
children,  husband  or  wife,  of  a  decedent,  or  to  the  issue  of  any 
child  or  children  of  a  decedent,  shall  be  taxed  at  tiie  rate  of  one 
per  centum  on  any  amount  in  excess  of  five  thousand  dollars,  up  to 
fifty  thousand  dollars;  one  and  one-half  per  centum  on  any  amount 
in  excess  to  [of  J  fifty  thousand  dollars,  up  to  one  hundred  and  fifty 
thousand  dollars;  two  per  centum  on  any  amount  in  excess  of  one 
hundred  and  fifty  thousand  dollars,  up  to  two  hundred  and  fifty 
thousand  dollars;  and  three  per  centum  on  any  amount  in  excess 
of  two  hundred  and  fifty  thousand  dollars." 

The  modified  formula  for  computing  the  assessment  upon  the 
transfer  of  the  estate  of  a  non-resident  decedent,  prescribed  in  §  12 
as  amended  by  the  act  under  consideration,  is  as  follows : 

"A  tax  shall  be  assessed  on  the  transfer  of  property  made  subject 
to  tax  as  aforesaid,  in  this  State  of  a  nonresident  decedent  if  all 
or  any  part  of  the  estate  of  such  decedent,  wherever  situated,  shall 
pass  to  persons  or  corjiorations  taxable  under  this  act,  which  tax 
shall  bear  the  same  ratio  to  the  entire  tax  which  the  said  estate 
would  liave  been  subject  to  under  this  act  if  such  nonresident  de- 
cedent had  been  a  resident  of  this  State,  and  all  his  property,  real 
and  personal,  had  been  located  within  this  State,  as  such  taxable 
property  within  this  State  bears  to  the  entire  estate,  wherever  sit- 
uated ;  provided,  that  nothing  in  this  clause  contained  shall  apply 
to  a  specific  bequest  or  devise  of  any  property  in  this  State." 

An  amendatory  act,  approved  April  23,  1915  (P.  L.  1915,  p.  745; 
1  Supp.  Comp.  Stats.  N.  J.,  p.  1542),  repeated  the  provision  last 
quoted,  and  made  no  change  in  the  act  pertinent  to  the  questions 
here  presented. 

It  is  this  method  of  assessment  in  the  case  of  non-resident  de- 
cedents which  is  the  subject-matter  in  controversy. 

James  IVfcDonald  died  January  13,  1915,  owning  stock  in  the 
Standard    Oil    Company,    a    New    Jersey    corporation,    valued    at 


300  MAXWELL    r.    BUGBEE.  [ciIAP.    IV. 

$1,114,065,  leaving  an  entire  estate  of  $3,969,333.25,  which  included 
some  real  estate  in  the  State  of  Idaho.  Of  the  entire  estate, 
$270,813.17  went  to  pay  debts  and  expenses  of  administration.  Mr. 
McDonald  was  a  citizen  of  the  United  States  and  a  resident  of  the 
District  of  Columbia,  and  left  a  will  and  a  codicil  which  were 
admitted  to  probate  b}'  the  Supreme  Court  of  that  District.  The 
executors  are  Lawrence  Maxwell,  a  citizen  of  Ohio,  and  the  Fulton 
Trust  Company',  a  New  York  corporation.  The  principal  benefici- 
aries under  the  will  are  citizens  and  residents  of  States  of  the  United 
States  other  than  the  State  of  New  Jersey.  Under  the  will  the  wife 
takes  by  specific  legacies ;  the  other  beneficiaries  are  specific  and  gen- 
eral legatees  not  related  to  the  deceased  and  a  son  and  two  grand- 
children, who  take  the  residuary  estate. 

James  J.  Hill  died  May  29,  1916,  intestate,  a  resident  and  citizen 
of  the  State  of  Minnesota,  leaving  a  widow  and  nine  children. 
Under  the  laws  of  Minnesota,  the  widow  inherited  one-third  of  the 
real  estate  and  personal  property,  and  each  of  the  children  two- 
twenty-sevenths  thereof.  The  entire  estate  descending  amounted  to 
$53,814,762,  which  included  real  estate  outside  of  New  Jersey,  and 
principally  in  Minnesota  and  New  York,  valued  at  $1,885,120.  The 
only  property  the  transfer  of  which  was  subject  to  taxation  in  New 
Jersey  was  stock  in  the  Northern  Securities  Company,  a  New  Jersey 
corporation,  valued  at  $2,317,564.68.  The  debts  and  administra- 
tion expenses  amounted  to  $757,571.20. 

The  amount  of  the  assessment  in  the  McDonald  case  was  $29,071.68, 
In  the  Hill  case  the  tax  assessed  amounted  to  $67,018.43.  Following 
the  statute,  the  tax  was  first  ascertained  on  the  entire  estate  as  if 
it  were  the  estate  of  a  resident  of  the  State  of  New  Jersey,  with  all 
the  decedent's  property  both  real  and  personal  located  there;  the 
tax  was  then  apportioned  and  assessed  in  the  proportion  that  the 
taxable  New  Jersey  estate  bore  to  the  entire  estate. 

The  thing  complained  of  is,  that  applying  the  apportionment 
formula  fixed  by  the  statute,  in  the  cases  under  review,  results  in 
a  greater  tax  on  the  transfer  of  property  of  the  estates  subject  to  the 
jurisdiction  of  New  Jersey  than  would  be  assessed  for  the  transfer 
of  an  equal  amount,  in  a  similar  manner,  of  property  of  a  decedent 
who  died  a  resident  of  New  Jersey.  The  cause  of  this  inequality 
is  said  to  arise  because  of  imposing  the  graduated  tax,  provided  by 
the  statute,  upon  estates  so  large  as  these.  If  a  resident,  in  the  case 
of  a  wife  or  children,  the  first  $5,000  of  property  is  exempt,  the  next 
$45,000  is  taxed  at  the  rate  of  1%,  the  next  $100,000  at  the  rate 
of  11/2%,  the  next  $100,000  at  the  rate  of  2%,  and  the  remainder 
at  the  rate  of  3%.  The  contention  is,  that  applying  the  apportion- 
ment rule  provided  in  the  case  of  non-resident  estates,  a  larger 
amount  of  tax  is  assessed. 

The  correctness  of  the  figures  deduced  from  the  application  of 
the  statute  as  made  by  the  counsel  for  plaintiffs  in  error  is  contested, 
but  in  our  view  the  differences  are  unimportant  unless  the  State  is 
bound  to  apply  the  same  rule  to  the  transmission  of  both  classes  of 
estates. 


CHAP.    IV.]  MAXWELL    V.    BUGBEE.  301 

Counsel  for  plaintiffs  in  error  sum  up  their  objections  to  the 
statute,  based  on  the  Federal  Constitution,  as  follows : 

(1)  It  taxes  the  estates  of  non-residents  more  than  those  of 
residents  and  therefore  gives  to  residents  privileges  and  immunities 
denied  to  non-residents. 

(2)  It  provides  for  a  tax  which  bears  unequally  and  tiierefore 
is  not  imposed  upon  a  uiiil'orm  rule  and  it  tiierefore  denies  to  non- 
icsidents  tiie  equal  protcition  of  the  laws. 

(3)  It  taxes  the  transfer  of  a  non-resident's  property  over  which 
the  State  of  New  Jersey  has  no  jurisdiction  while  it  expressly  omits 
like  property  of  residents,  that  is,  real  estate  without  the  State,  and 
thereby  deprives  the  non-resident  of  his  property  without  due  process 
of  the  law. 

Before  taking  up  these  objections  it  is  necessary  to  briefly  consider 
tlie  nature  of  the  tax.  In  Carr  v.  Edwards,  84  N.  J.  L.  667,  it  was 
held  by  the  New  Jersey  Court  of  Errors  and  Appeals  to  be  a  tax 
upon  the  special  right,  the  creation  of  the  statute,  of  an  executor  or 
administrator  of  a  non-resident  decedent  to  succeed  to  property 
having  its  situs  in  New  Jersey.  Of  §  12,  as  it  stood  in  the  original 
act  of  1909,  the  court  said:  "That  section  contains  nothing  to  in- 
dicate that  it  is  not  the  succession  of  the  New  Jersey  representative 
that  is  meant  to  be  taxed.  It  is  true  that  the  tax  is  not  necessarily 
five  per  cent,  upon  the  whole  New  Jersey  succession.  The  amount 
depends  on  the  ratio  of  the  New  Jersey  property  to  the  entire  estate 
wherever  situated.  This,  however,  merely  accords  a  measure  of  the 
tax  imposed ;  the  tax  is  still  by  the  very  words  of  the  section  imposed 
upon  the  property  located  within  this  state.  The  reason  for  adopting 
this  provision  was  to  make  sure  that  the  rate  of  taxation  in  case  of 
non-resident  decedents  should  equal  but  not  exceed  the  rate  imposed 
in  the  case  of  resident  decedents.  .  .  . 

"In  the  case  of  the  estates  of  non-resident  decedents,  it  is  open 
for  the  law  of  the  domicile  to  provide,  as  testators  sometimes  do, 
that  such  taxes  shall  be  a  general  charge  against  the  estate.  Our 
legislature  must  be  assumed  to  have  had  in  mind  its  lack  of  juris- 
diction over  legacies  under  a  non-resident's  will,  and  in  order  to 
protect  the  New  Jersey  executor,  administrator  or  trustee  who  paid 
the  tax,  authorized  its  deduction  from  'property  for  distribution.' 
This  phrase  suffices  to  reach  not  only  a  distributive  share  of  a  resi- 
dent's estate  in  case  of  intestacy,  but  the  whole  of  the  New  Jersey 
property  of  a  non-resident  when  turned  over  to  the  executor  or  ad- 
ministrator at  the  domicile  of  the  decedent.  -The  provision  for  both 
cases  —  legacies  and  property  for  distribution  —  demonstrates  that 
the  legislature  did  not  mean  to  provide,  as  counsel  contends,  for  a 
legacy  duty  only." 

This  language  correctly  characterizes  the  nature  and  effect  of 
the  tax  as  imposed  under  the  amendment  of  191-4:  but  that  act, 
under  wliich  tlie  present  cases  arise,  instead  of  reaching  "  the  whole 
of  the  New  Jersev  property  of  a  non-resident  when  turned  over  to 
the  executor  or  administrator  at  the  domicile  of  the  decedent,''  now 
confines  the  transfer  tax  upon  the  property  of  non-resident  decedents 


302  MAXWELL    V.    BUGBEE.  [ciIAP.    IV. 

to  real  estate  and  tangible  personal  property  within  the  State,  the 
stock  of  Xew  Jersey  corporations,  and  the  stock  of  national  banks 
located  within  the  State. 

The  tax  is,  then,  one  upon  the  transfer  of  property  in  New  Jersey, 
to  be  paid  upon  turning  it  over  to  the  administrator  or  executor 
at  the  domicile  of  the  decedent.  That  transfers  of  this  nature  arc 
within  the  taxing  power  of  the  State,  and  that  taxes  may  be  assessed 
upon  such  riglits  owing  their  existence  to  local  laws,  and  to  them 
alone,  is  not  disputed.  The  right  to  inherit  property,  or  to  receive 
it  under  testamentary  disposition,  has  been  so  frequently  held  to 
be  the  creation  of  statutory  hiw,  that  it  is  quite  unnecessary  to  cite 
the  decisions  which  have  maintained  the  principle.  Wliile  this  is 
confessedly  true,  the  assessment  of  such  taxes  is,  of  course,  subject 
to  applicable  limitations  of  the  state  and  federal  constitutions;  it 
is  with  the  latter  class  only  that  this  court  has  to  do. 

(1)  Taking  up,  then,  the  objections  raised  under  the  Federal 
Constitution,  it  is  said  that  the  law  (a)  denies  to  citizens  of  other 
States  the  privileges  and  immunities  granted  to  citizens  of  the  State 
of  New  Jersey,  in  violation  of  par.  1,  §  2,  Art.  IV,  of  the  Federal 
Constitution,  which  reads :  "  The  citizens  of  each  State  shall  be 
entitled  to  all  privileges  and  immunities  of  citizens  in  the  several 
States;"  (b)  abridges  the  privileges  and  immunities  of  plaintiffs  in 
error,  the  deceased  persons  whom  they  represent,  and  those  taking 
by  ^\'ill  or  intestacy  under  them,  as  citizens  of  the  United  States, 
in  contravention  of  §  1  of  the  Fourteenth  Amendment. 

The  provision  quoted  from  Art.  IV  of  the  Constitution  was  in- 
tended to  prevent  discrimination  by  the  several  States  against 
citizens  of  other  States  in  respect  of  the  fundamental  privileges  of 
citizenship.  As  is  said  by  Judge  Cooley  in  his  Constitutional  Limi- 
tations, ?th  ed.,  p.  569 :  "  It  appears  to  be  conceded  tliat  tlie  Con- 
stitution secures  in  each  State  to  the  citizens  of  all  other  States  the 
right  to  remove  to,  and  carry  on  business  therein ;  the  right  by  the 
usual  modes  to  acquire  and  hold  property,  and  to  protect  and  de- 
fend the  same  in  the  law;  the  right  to  the  usual  remedies  for  the 
collection  of  debts  and  the  enforcement  of  other  personal  rights; 
and  the  right  to  be  exempt,  in  property  and  person,  from  taxes  or 
burdens  which  the  propertv,  or  persons,  of  citizens  of  the  same 
State  are  not  subject  to."  Paul  r.  Viririnia,  8  Wall.  168,  180;  Ward 
r.  Maryland,  12  Wall.  418,  430. 

The  Fourteenth  Amendment  recognized  a  distinction  between 
citizenship  of  the  United  States  and  citizenship  of  one  of  the  States. 
It  provides :  "  No  State  shall  make  or  enforce  any  law  which  shall 
abridge  the  privileges  or  immunities  of  citizens  of  the  United 
States."  ^^^lat  those  privileges  and  immunities  were  was  under 
consideration  in  Slaugliter-IIouse  Cases,  16  Wall.  36,  72-79,  where 
it  was  shown  (pp.  77-78)  that  it  was  not  the  purpose  of  this  Amend- 
ment, by  the  declaration  that  no  Stale  should  make  or  enforce  any 
law  which  should  abridge  the  privileges  and  immunities  of  citizens 
of  the  United  States,  to  transfer  from  the  States  to  the  Federal  Gov- 
ernment the  security  and  protection  of  those  civil  rights  that  inhere 


CHAP.    IV.]  MAXWELL    V.    BUGBEE.  303 

in  state  citizenship;  and  (p.  79)  that  the  privileges  and  immunities 
of  citizens  ot  the  United  States  thereby  placed  beyond  abridgment 
by  the  States  were  those  which  owe  tlieir  existence  to  the  Federal 
Government,  its  national  ciiaracter,  its  constitution,  or  its  laws. 
To  the  same  ellect  is  Duncan  v.  Missouri,  15^  U.  S.  ;i77,  3H2. 

We  are  unable  to  discover  in  the  statute  before  us,  which  regulates 
and  taxes  the  riglit  to  succeed  to  property  in  New  Jersey  upon  the 
death  of  a  non-resident  owner,  any  infringement  of  the  riglits  of 
citizenship  either  of  the  States  or  of  the  United  States,  secured  by 
either  of  tlie  constitutional  provisions  referred  to.  We  have  held 
that  the  protection  that  they  afford  to  riglits  inherent  in  citizenship 
are  not  infringed  by  the  taxation  of  the  transfer  of  property  within 
the  jurisdiction  of  a  State  ])assing  by  will  or  intestacy  where  the 
decedent  was  a  non-resident  of  the  taxing  State,  although  the  entire 
succession  was  taxed  in  the  State  where  he  resided.  Blackstone  v. 
Miller,  188  U.  S.  189,  207. 

Upon  this  point  it  is  unnecessary  to  decide  whether  the  case  might 
not  be  rested  on  a  much  narrower  ground.  The  alleged  discrim- 
ination, here  complained  of,  so  far  as  privileges  and  immunities  of 
citizenship  are  concerned,  is  not  strictly  applicable  to  this  statute 
because  the  difference  in  the  method  of  taxation  rests  upon  residence 
and  not  upon  citizens) li p.  La  Tourette  r.  McMaster,  248  U.  S. 
465. 

(2)  It  is  next  contended  that  the  effect  of  including  the  property 
beyond  the  jurisdiction  of  the  State  in  measuring  the  tax,  amounts 
to  a  deprivation  of  property  without  due  process  of  law  because 
it  in  effect  taxes  property  beyond  the  jurisdiction  of  the  State. 

It  is  not  to  be  disputed  that,  consistently  with  the  Federal  Con- 
stitution, a  State  may  not  tax  property  beyond  its  territorial  juris- 
diction, but  the  subject-matter  here  regulated  is  a  privilege  to  suc- 
ceed to  property  which  is  within  the  jurisdiction  of  the  State.  When 
the  State  levies  taxes  within  its  authority,  property  not  in  itself 
taxable  by  the  State  may  be  used  as  a  measure  of  the  tax  imposed. 
This  principle  has  been  frequently  declared  by  decisions  of  this 
court.  The  previous  cases  were  reviewed  and  the  doctrine  applied 
in  Kansas  City,  Fort  Scott  &  Memphis  l?y.  Co.  v.  Kansas,  240  U.  S. 
227,  232.  After  deciding  that  the  privilege  tax,  there  involved,  did 
not  impose  a  burden  upon  interstate  commerce,  this  court  held  that 
it  was  not  in  substance  and  effect  a  tax  upon  property  beyond  the 
State's  jurisdiction,  although  a  large  amount  of  tlie  property,  which 
was  referred  to  as  a  measure  of  the  assessment,  was  situated  outside 
of  the  State.  In  the  present  case  the  State  imposes  a  privilege  tax, 
clearly  within  its  authoritv,  and  it  has  adopted  as  a  measure  of  that 
tax  the  proportion  which  the  specified  local  property  bears  to  the 
entire  estate  of  the  decedent.  That  it  may  do  so  within  limitations 
which  do  not  really  make  the  tax  one  upon  property  bevond  its 
jurisdiction,  the  decisions  to  which  we  have  referred  clearlv  estab- 
lish. The  transfer  of  certain  property  within  the  State  is  taxed  by 
a  rule  which  considers  the  entire  estate  in  arriving  at  the  amount  of 
the  tax.     It  is  in  no  just  sense  a  tax  upon  the  foreign  property,  real 


30i  MAXWELL     V.    BUGBEE.  [CHAP.    IV. 

or  personal.  It  is  only  in  instances  where  the  State  exceeds  its  au- 
thority in  imposing  a  tax  upon  a  subject-matter  within  its  jurisdic- 
tion in  such  a  way  as  to  really  amount  to  taxing  that  which  is  beyond 
its  authority,  that  such  exercise  of  power  by  the  State  is  held  void. 
In  cases  of  that  character  the  attempted  taxation  must  fail.  Looney 
V.  Crane  Co.,  245  U.  S.  178;  International  Paper  Co.  v.  Massachu- 
setts, 246  U.  S.  135.  To  say  that  to  apply  a  dilferent  rule  regulating 
succession  to  resident  and  non-resident  decedents  is  to  levy  a  tax 
upon  foreign  estates,  is  to  distort  the  statute  from  its  purpose  to 
tax  the  privilege,  which  the  statute  has  created,  into  a  property  tax, 
and  is  unwarranted  by  any  purpose  or  effect  of  the  enactment,  as 
we  view  it. 

(3)  It  is  further  contended  that  the  tax  bears  so  unequally  upon 
non-residents  as  to  deny  to  them  the  equal  protection  of  the  laws. 

The  subject  of  taxes  of  this  character  was  given  full  consideration 
by  this  court  in  Magoun  v.  Illinois  Trust  &  Savings  Bank,  170  U.  S. 
283,  in  which  case  a  graded  legacy  and  inheritance  tax  law  of  the 
State  of  Illinois  was  sustained.  The  statute  exempted  all  estates 
valued  at  less  than  $20,000,  if  passing  to  near  relations,  or  at  less  than 
$500  if  passing  to  those  more  remote,  made  the  rate  of  tax  increas- 
ingly greater  as  the  inheritances  increased,  and  assessed  it  differently 
according  to  the  relationship  of  the  beneficiary  to  the  testator  or  in- 
testate. The  statute  was  attacked  as  void  under  the  equal  protection 
clause  of  the  Fourteenth  Amendment,  but  was  held  to  be  valid.  Of 
this  class  of  taxes  the  court  said  (p.  288):  "They  [inheritance 
taxes]  are  based  upon  two  principles:  1.  An  inheritance  tax  is  not 
one  on  propert}',  but  one  on  the  succession.  2.  The  right  to  take 
property  by  devise  or  descent  is  the  creature  of  the  law,  and  not  a 
natural  right  —  a  privilege,  and  therefore  the  authority  which  con- 
fers it  may  impose  conditions  upon  it.  From  these  principles  it  is 
deduced  that  the  States  may  tax  the  privilege,  discriminate  between 
relatives,  and  between  these  and  strangers,  and  grant  exemptions ; 
and  are  not  precluded  from  this  power  by  the  provisions  of  the 
respective  state  constitutions  requiring  uniformity  and  equality  of 
taxation." 

And  upon  examining  (pp.  296,  297)  the  classification  upon  which 
the  provisions  of  the  Illinois  statute  were  based,  the  court  found 
there  was  no  denial  of  the  equal  protection  of  the  laws  either  in  dis- 
criminating between  those  lineally  and  those  collaterally  related  to 
decedent,  and  those  standing  as  strangers  to  the  blood,  or  in  in- 
creasing the  proportionate  burden  of  the  tax  progressively  as  the 
amount  of  the  benefit  increased. 

Equal  protection  of  the  laws  requires  equal  operation  of  the  laws 
upon  all  persons  in  like  circumstances.  Under  the  statute,  in 
the  present  case,  the  graduated  taxes  are  levied  equally  upon  all 
interests  passing  from  non-resident  testators  or  intestates.  The  tax 
is  not  upon  property,  but  upon  the  privilege  of  succession,  which  the 
State  may  grant  or  wathhold.  It  may  deny  it  to  some  and  give  it  to 
others.  The  State  is  dealing  in  this  instance  not  with  the  transfer 
of  the  entire  estate,  but  only  with  certain  classes  of  property  that  are 


CHAP.    IV.]  MAXWELL    V.    BUGBEE.  305 

subject  to  the  jurisdiction  of  the  State.  It  must  find  some  rule 
which  will  adequately  deal  with  this  situation.  It  has  adopted  that 
of  the  proportion  of  the  local  estate  in  certain  property  to  the  en- 
tire estate  of  the  decedent.  In  makin*^  classification,  which  has  been 
uniformly  held  to  be  within  the  power  of  the  State,  inequalities 
necessarily  arise,  for  some  classes  are  reached,  and  others  omitted, 
but  this  has  never  been  held  to  render  such  statutes  unconstitutional. 
Beers  v.  Glynn,  211  U.  S.  477.  This  principle  lias  been  recognized 
in  a  series  of  cases  in  this  court.  Board  of  Education  v.  Illinois,  203 
U.  S.  553;  Campbell  v.  California,  2U0  U.  S.  87;  Keeney  v.  New 
York,  222  U.  S.  525.  It  has  been  uniformly  held  that  the  Four- 
teenth Amendment  does  not  deprive  the  States  of  the  right  to  de- 
termine the  limitations  and  restrictions  upon  the  right  to  inherit 
property,  but  "•  at  the  most  can  only  be  held  to  restrain  such  an 
exercise  of  power  as  would  exclude  the  conception  of  judgment  and 
discretion,  and  -which  would  be  so  obviously  arbitrary  and  unreason- 
able as  to  be  beyond  the  pale  of  governmental  authority."  Campbell 
V.  California,  200  U.  S.  95.  In  upholding-  the  validity  of  a  gradu- 
ated tax  upon  the  transfer  of  personal  property,  to  take  effect  upon 
the  grantor's  death,  we  said  in  Keeney  v.  New  York,  250  U.  S.  535; 
"The  validity  of  the  tax  must  be  determined  by  the  laws  of  New 
York.  The  "Fourteenth  Amendment  docs  not  diminish  the  taxing 
power  of  the  State,  but  only  requires  that  in  its  exercise  the  citizen 
must  be  afforded  an  opportunity  to  be  heard  on  all  questions  of  lia- 
bility and  value,  and  shall  not,  by  arbitrary  and  discriminatory  pro- 
visions, be  denied  equal  protection.  It  does  not  deprive  the  State  of 
the  power  to  select  the  subjects  of  taxation.  But  it  does  not  follow 
that  because  it  can  tax  any  transfer  (Hatch,  v.  Eeardon,  204  U.  S. 
152,  159),  that  it  must  tax  all  transfers,  or  that  all  must  be  treated 
alike." 

In  order  to  invalidate  this  tax  it  must  be  held  that  the  difference 
in  the  manner  of  assessing  transmission  of  property  by  testators  or 
intestates,  as  between  resident  and  non-resident  decedents,  is  so 
wholly  arbitrary  and  unreasonable  as  to  be  beyond  the  legitimate 
authority  of  the  State.  We  are  not  prepared  so  to  declare.  The 
resident  testator  or  intestate  stands  in  a  different  relation  to  the 
State  than  does  the  non-resident.  The  resident's  property  is  usually 
Avithin  the  ready  control  of  the  State,  and  easily  open  to  inspection 
and  discovery  for  taxation  purposes,  by  means  quite  different  from 
those  afforded  in  cases  of  local  holdings  of  non-resident  testators 
or  intestates.  As  to  the  resident,  his  entire  intangible,  and  usually 
most  of  his  tangible  property,  pay  tribute  to  the  State  when  trans- 
ferred bv.  Avill  or  intestacy ;  the  transfer  of  the  non-resident's  estate 
is  taxed  only  so  far  as  his  estate  is  located  within  the  jurisdiction 
and  onlv  so  far  as  it  comes  within  the  description  of  "  real  property 
within  this  State,  or  of  goods,  wares,  and  merchandise  witliin  this 
State,  or  of  shares  of  stock  of  corporations  of  this  State,  or  of  na- 
tional banking  associations  located  in  this  State."  Simple  contract 
debts  owing  by  New  Jersey  debtors  to  non-residents  and  some  other 
kinds  of  property  of  non-residents  are  exempt,  although  it  is  settled 


306  .MAXWELL     r.     BUG  BEE.  [ciIAP.    IV. 

that,  for  the  purpose  of  founding  administration,  simple  contract 
debts  are  assets  at  the  domicile  of  the  debtor;  Wyman  v.  Halstead, 
109  U.  S.  654,  ()56 ;  and  that  the  State  of  the  debtor's  domicile 
may  impose  a  succession  tax ;  Blackstone  i'.  Miller,  188  U.  S.  189, 
205 ;  Baker  v.  Baker,  Eccles  &  Co.,  3-12  U.  S.  394,  401. 

The  question  of  equal  protection  must  be  decided  as  between 
resident  and  non-resident  decedents  as  classes,  rather  than  by  the 
incidence  of  the  tax  upon  the  particular  estates  whose  representatives 
are  here  complaining.  Absolute  equality  is  impracticable  in  taxa- 
tion, and  is  not  required  by  the  equal  protection  clause.  And  in- 
t'cpialities  that  result  not  from  hostile  discrimination,  but  occasion- 
ally and  iut-identally  in  the  application  of  a  system  that  is  not 
arbitrary  in  its  classification,  are  not  suthcient  to  defeat  the  law. 

In  our  opinion,  there  are  substantial  differences  wliich  within  the 
rules  settled  by  this  court  permit  the  classification  which  has  been 
accomplished  bv  this  statute.  St.  Louis  Southwestern  Ky.  Co.  v. 
Arkansas,  235  U.  S.  350,  367,  and  cases  cited. 

Finding  no  error  in  the  judgments  of  tlie  Court  of  Errors  and 
Appeals  of  the  State  of  Xew  Jersey,  the  same  are 

Afftrmed. 

Me.  Justice  Holmes  dissenting. 

Many  things  that  a  legislature  may  do  if  it  does  them  with  no 
ulterior  purpose,  it  cannot  do  as  a  means  to  reach  what  is  beyond 
its  constitutional  power.  That  I  understand  to  be  the  principle 
of  Western  Union  Telegraph  Co.  v.  Kansas;  Pullman  Company  v. 
Kansas,  and  other  cases  in  216  U.  S.  Western  Union  Telegraph 
Co.  V,  Foster,  247  U.  S.  105,  114.  New  Jersey  cannot  tax  the 
property  of  Hill  or  MacDonald  outside  tlie  State  and  cannot  use 
her  power  over  property  within  it  to  accomplish  by  indirection 
what  she  cannot  do  directly.  It  seems  to  me  that  that  is  what  she  is 
tr}'ing  to  do  and  therefore  that  the  judgments  of  the  Court  of 
Errors  and  Appeals  should  be  reversed. 

It  seems  to  me  that  when  property  outside  the  State  is  taken 
into  account  for  the  purpose  of  increasing  the  tax  upon  property 
within  it,  the  property  outside  is  taxed  in  effect,  no  matter  what 
form  of  words  may  be  used.  It  appears  to  me  that  this  cannot  be 
done,  even  if  it  should  be  done  in  such  a  way  as  to  secure  equality 
between  residents  in  New  Jersey  and  those  in  other  States. 

New  Jersey  could  not  deny  to  residents  in  other  States  the  right 
to  take  legacies  which  it  granted  to  its  own  citizens,  and  therefore 
its  power  to  prohibit  all  legacies  cannot  he  invoked  in  aid  of  a 
principle  thnt  affects  the  foreign  residents  alone.  In  Kansas  City, 
Fort  Scott  &  Memphis  Ey.  Co.  v.  Kansas,  240  U.  S.  227,  235,  the 
State  could  have  refused  incorporation  altogether  and  therefore 
could  impose  the  carefully  limited  condition  that  was  upheld. 

Tfte  CiriEF  Justice,  Mil  Justice  VaxDevanter  and  Mr.  Jus- 
tick  McReynolds  concur  in  the  opinion  that  I  express. 

White,  C.  J.,  VanDevaxter  and  McReynolds,  JJ.,  concurred 
in  the  dissent. 


CHAP 


IV,]'  l.\     UK     KSTATE     OF     SWIFT.  306a 


In  re  estate  OF   SWIFT. 

Court  of  Appeals  ok  New  Yokk.     1893. 

[Reported  Vi7  AVw  Vorfc,  77.] 

Gkay,  J.  James  T.  Swift  died  in  .July,  1S9U,  being  a  resident  of 
this  State  iind  leaving  :i  will,  by  which  he  made  a  disposition  of  all  his 
property  among  relatives.  After  many  legacies  of  money  ami  of 
various  articles  of  personal  i)r()perty,  he  directed  a  division  of  his 
residuary  estate  into  four  portions,  and  lie  devised  and  bequeathed  one 
portion  to  each  of  four  persons  named.  The  executors  were  given  a 
power  of  sale  for  the  purpose  of  paying  the  legacies  and  of  making  the 
distribution  of  the  estate.  At  the  time  of  his  death,  the  testator's 
estate  included  certain  real  estate  and  tangible  personal  property  in 
chattels,  situated  within  the  State  of  New  Jersey,  which  were  realized 
upon  by  the  executors  and  converted  into  moneys  in  hand.  When, 
upon  their  application,  an  appraisement  was  had  of  the  estate,  in  order 
to  fix  its  value  under  the  requirements  of  the  law  taxing  gifts,  legacies, 
and  inheritances,  the  surrogate  of  the  county  of  New  York,  before 
whom  the  matter  came,  held,  with  respect  to  the  appraisement,  that 
the  real  and  personal  property  situated  without  the  State  of  New  York 
were  not  subject  to  appraisal  and  tax  under  the  law,  and  the  excep- 
tions taken  by  the  comptroller  of  the  city  of  New  York  to  that  deter- 
mination raise  the  first  and  the  principal  question  which  we  shall 
consider. 

Surrogate  Ransom's  opinion,  which  is  before  us  in  the  record,  con- 
tains a  careful  review  of  the  legal  principles  which  limit  the  right  to 
impose  the  tax,  and  his  conclusions  are  as  satisfactory  to  my  mind,  as 
they  evidently  were  to  the  minds  of  the  learned  justices  of  the  General 
Term  of  the  Supreme  Court,  who  agreed  in  adirming  the  surrogate's 
decree  upon  his  opinion. 

The  Attorney -General  has  argued  that  this  law,  commonly  called  the 
collateral  inlieritance  tax  law,  imposes  not  a  property  tax  but  a  charge 
for  the  privilege  of  acquiring  property,  and,  as  I  apprehend  it,  the 
point  of  his  argument  is  that,  as  there  is  no  absolute  right  to  succeed 
to  property,  the  State  has  a  rigiit  to  annex  a  condition  to  the  permis- 
sion to  take  by  will,  or  by  the  intestate  laws,  in  the  form  of  a  tax,  to 
be  paid  by  the  persons  for  whose  benefit  the  remedial  legislation  has 
been  enacted.  That  is,  sul)stantially,  the  way  in  which  he  puts  the 
proposition,  and  if  the  premise  i)e  true  that  tlie  tax  imposed  is  upon 
the  privilege  to  acquire,  and.  as  he  says  in  his  brief,  is  like  ''  a  duty 
imposed,  payable  by  the  beneficiary,"  possibly  enough,  we  should  have 
to  ao-ree  with  him.  We  might  think,  in  that  view  of  the  act,  that  the 
situs  of  property  in  a  foreign  jurisdiction  was  not  a  controlling  circum- 
stance. But  if  we  take  up  the  j)rovisions  of  the  law  by  which  the  tax 
is  imoosed.  and  if  we  consider  them  as  they  are  framed  and   the  i)rin' 


306b  TX    EE    ESTATE    OF    SWIFT.  [ciIAP.    IV. 

ciple  which  then  seems  to  underlie  the  peculiar  system  of  taxation 
created,  I  do  not  think  that  his  essential  proposition  finds  adequate 
support.  The  law  in  force  at  the  time  of  the  decease  of  the  testator  is 
contained  in  chapter  713  of  the  Laws  of  1887,  amending  chapter  483 
of  the  Laws  of  1885,  and  is  entitled ''  An  act  to  tax  gifts,  legacies,  and 
collateral  inheritances  in  certain  cases." 

Bv  the  first  section  it  is  provided  that  "  all  property  which  shall  pass 
bv  will  .  .  .  from  any  person  who  may  die  seized  or  possessed  of  the 
same,  while  a  resident  of  this  State,  or,  if  such  decedent  was  not  a 
resident  of  this  State  at  the  time  of  his  death,  wliich  property  or  any 
part  thereof  shall  be  within  this  State,  .  .  .  shall  be  and  is  subject  to 
a  tax  ...  to  be  paid  ...  for  the  use  of  the  State,"  etc. 

In  the  fourth  section  it  is  provided  that  "  all  taxes  imposed  by  this 
act,  unless  otherwise  herein  provided  for,  shall  be  due  and  payable  at 
the  death  of  the  decedent,"  etc. 

By  the  sixth  section,  it  is  provided  that  the  executor  shall  "  deduct 
the  tax  from  the  legacy  or  property,  subject  to  said  tax,  or  if  the 
legacy  or  property  be  not  money,  he  shall  collect  the  tax  thereon  upon 
the  appraised  value  thereof  from  the  legatee,  or  person  entitled  to  such 
property,  and  he  shall  not  deliver,  or  be  compelled  to  deliver,  any  spe- 
cific legacy  or  property  subject  to  tax  to  any  person  until  he  shall  have 
collected  the  tax  thereon,"  etc.  The  language  of  the  act  has  been 
justly  condemned,  for  being  involved  and  difficult  to  read  clearly;  but 
considering  the  language  employed  in  these  and  in  other  sections  of  the 
law,  in  its  ordinary  sense,  I  think  we  would  at  once  say  that  if  the 
legislature  had  not  actually  imposed  a  tax  upon  the  property  itself, 
upon  the  death  of  its  owner,  it  had  certainly  intended  to  impose  a  tax 
upon  its  succession,  which  was  to  be  a  charge  upon  the  property,  and 
which  operated,  in  effect,  to  diminish  pro  tanto  its  value,  or  the  capi- 
tal, coming  to  the  new  owner  under  a  will,  or  by  the  intestate  laws. 
Could  any  one  sa}-,  after  reading  the  provisions  of  this  law,  that  it  was 
the  legatee,  or  person  entitled,  who  was  taxed  ?  I  doubt  it.  Propert}-, 
which  was  the  decedent's  at  the  time  of  his  death,  is  subjected  to  the 
payment  of  a  tax.  The  tax  is  to  be  deducted  from  the  legacy ;  or, 
when  deduction  is  not  possible  from  the  legacy  not  being  in  money, 
and  a  collection  from  the  legatee  or  the  person  entitled  to  the  property 
is  authorized  to  be  made,  the  tax  so  to  be  collected  is  described  as 
"  the  tax  thereon,"  that  is,  on  the  property. 

If  it  should  be  said  that  such  an  interpretation  of  the  law  is  in  con- 
flict with  a  doctrine  which  some  judges  have  asserted,  respecting  the 
nature  of  this  tax,  I  think  it  might  be  sufficient  to  say  that  the  phrase- 
ology of  the  New  York  law  differs,  more  or  less,  from  that  of  other 
States,  and  seems  peculiarly  to  charge  the  subject  of  the  succession 
with  the  payment  of  the  tax.  But  I  do  not  think  it  at  all  important 
to  our  decision  here  that  we  should  hold  it  to  be  a  tax  upon  property 
precisely. 

A  precise  definition  of  the  nature  of  this  tax  is  not  essential,  if  it  is 


f 


CHAP.     IV.]  IX     BE     ESTATE     OF     SWIFT.  30Gc 

susceptible  of  exact  definition.  Thus  far,  in  this  court,  we  have  not 
tlioujiht  it  necessary,  in  the  cases  coming  before  us,  to  determine 
whether  the  object  of  taxation  is  the  property  which  passes,  or  not ; 
though,  in  some,  expressions  may  be  found  which  seem  to  regard  the 
tax  in  that  light.  Matter  of  .Mcl'her.son,  104  N.'Y.  300;  Matter  of 
Enston,  113  id.  174;  Matter  of  Sherwell,  125  id.  379;  Matter  of  Ro- 
maine,  127  id.  80  ;  and  Matter  of  Stewart,  131  id.  274.  The  idea  of 
tliis  succession  tax,  as  we  may  conveniently'  term  it,  is  more  or  less 
compound  ;  the  principal  idea  being  the  subjection  of  property,  owner- 
ship of  which  lias  ceased  by  reason  of  the  death  of  its  owner,  to  a 
diminution,  by  the  State  reserving  to  itself  a  portion  of  its  amount,  if 
in  money,  or  of  its  appraised  value,  if  in  other  forms  of  property.  The 
accompanying,  or  the  correlative  idea  should  necessarily  be  that  the 
property,  over  which  such  dominion  is  thus  exercised,  shall  be  within 
the  territorial  limits  of  the  State  at  its  owner's  death,  and,  therefore, 
subject  to  the  operation  and  the  regulation  of  its  laws.  The  State,  in 
exercising  its  power  to  subject  realty,  or  tangible  property',  to  the 
operation  of  a  tax,  must,  by  every  rule,  be  limited  to  property-  within 
its  territorial  confines. 

The  question  here  does  not  relate  to  the  power  of  the  State  to  tax 
its  residents  with  respect  to  the  ownership  of  property  situated  else- 
where. That  question  is  not  involved.  The  question  is  whether  the 
legislature  of  the  State,  in  creating  this  system  of  taxation  of  inherit- 
ances, or  testamentary  gifts,  has  not  fixed  as  the  standard  of  right  the 
property  passing  by  will,  or  bv  the  intestate  laws. 

What  has  the  State  done,  in  eflfect,  by  the  enactment  of  this  tax  law? 
It  reaches  out  and  appropriates  for  its  use  a  portion  of  the  property  at 
the  moment  of  its  owner's  decease  ,  allowing  onh'  the  balance  to  pass 
in  the  wa}'  directed  by  testator,  or  permitted  by  its  intestate  law,  and 
while,  in  so  doing,  it  is  exercising  an  inherent  and  sovereign  right,  it 
seems  very  clear  to  my  mind  that  it  aflfects  only  property  which  lies 
within  it,  and,  consequently,  is  subject  to  its  right  of  eminent  domain. 
The  theory  of  sovereignt}',  which  invests  the  State  with  the  right  and 
the  power  to  permit  and  to  regulate  the  succession  to  property  upon 
its  owner's  decease,  rests  upon  the  fact  of  an  actual  dominion  over 
that  property.  In  exercising  such  a  power  of  taxation,  as  is  here  in 
question,  the  principle,  obviously,  is  that  all  property  in  the  State  is 
tributar}'  for  such  a  purpose  and  the  sovereign  power  takes  a  portion, 
or  percentage  of  the  propert}-,  not  because  the  legatee  is  subject  to 
its  laws  and  to  the  tax.  but  because  the  State  has  a  superior  right,  or 
ownership,  by  force  of  which  it  can  intercept  the  propert}-,  upon  its 
owner's  death,  in  its  passage  into  an  ownership  regulated  by  the  en- 
abling legislation  of  the  State. 

The  rules  of  taxation  have  become  prettv  well  settled,  and  it  is  fun- 
damental among  them  that  tliere  shall  be  jurisdiction  over  the  subject 
taxed;  or,  as  it  has  been  sometimes  expressed,  the  taxing  power  of 
the  Stflte  is  coextensive  with  its  sovereignty.     It  has  not  the  power  to 


oOGd  IX    EE    ESTATE    OF    SWIFT.  [cHAP.    T\\ 

tax  directly  either  lands  or  tangible  personal  property  situated  in  an- 
other btate  or  country.  As  to  the  latter  description  of  property  no 
fiction  transmuting  its  situs  to  the  domicile  of  the  owner  is  available, 
when  the  question  is  one  of  taxation.  In  this  connection  the  observa- 
tions of  Chief  Judge  Comstock,  in  Hoyt  r.  Commissioners  of  Taxes, 
23  N.  Y.  2'2-i,  and  of  some  text-writers,  are  not  inappropriate!}' referred 
to.  He  had  said  that  lauds  and  personal  property  having  an  actual 
situation  within  the  State  are  taxable,  and,  by  a  necessary  implication, 
that  no  other  property  can  be  taxed.  He  says,  further,  "  If  we  say  that 
taxation  is  on  the  person  in  respect  to  the  property,  we  are  still  without 
a  reason  for  assessing  the  owner  resident  here  in  respect  to  one  part 
of  his  estate  situated  elsewhere  and  not  in  respect  to  another  part. 
Both  are  the  subjects  of  taxation  in  the  foreign  jurisdiction." 

In  Judge  Cooley's  work  on  Taxation  it  is  remarked  (p.  159)  that 
"  a  State  can  no  more  subject  to  its  power  a  single  person,  or  a  single 
article  of  property-,  whose  residence  or  situs  is  in  another  State,  than 
it  can  subject  all  the  citizens,  or  all  the  property  of  such  other  State  to 
its  power." 

Judge  Cooley  had  reference  in  his  remarks  to  the  case  of  bonds  of  a 
railroad;  for  he  cites  the  case  of  "the  State  Tax  on  Foreign-Held 
Bonds  "  in  the  United  States  Supreme  Court  (15  Wallace,  300),  where 
Mr.  Justice  Field  delivered  the  opinion,  and,  in  the  course  of  it,  observed 
that  ''  the  power  of  taxation,  however  vast  in  its  character  and  search- 
ing in  its  extent,  is  necessarily  limited  to  subjects  within  the  jurisdic- 
tion of  the  State." 

Judge  Story,  in  his  work  on  the  Conflict  of  Laws,  speaking  of  the 
subject  of  jurisdiction  in  regard  to  property,  said  (section  550)  that 
the  legal  fiction  as  to  the  situs  of  movables  yields  when  it  is  necessary 
for  the  purpose  of  justice,  and,  further,  "  a  nation  within  whose  terri- 
tory any  personal  property  is  actually  situated  has  an  entire  dominion 
over  it  while  tlierein.  in  point  of  sovereignty  and  jurisdiction,  as  it  has 
over  immoval)le  pi-oi)erty  situated  there." 

The  pro|)osition  wliich  suggests  itself  from  reasoning,  as  from  author- 
ity, is  tiiat  the  basis  of  the  power  to  tax  is  the  fact  of  an  actual  domin- 
ion over  the  snbje(;t  of  taxation  at  the  time  the  tax  is  to  be  imposed. 

The  effect  of  tliis  special  tax  is  to  take  from  the  property  a  portion, 
or  a  percentage  of  it,  for  the  use  of  the  State,  and  I  think  it  quite 
immaterial  whether  the  tax  can  be  precisely  classified  with  a  taxation 
of  property  or  not.  It  is  not  a  tax  upon  persons.  If  it  is  called  a  tax 
upon  the  succession  to  tlie  ownershi|)  of  property,  still  it  relates  to 
and  subjects  the  property  itself,  and  when  that  is  without  the  jurisdic- 
tion of  the  State,  inasmuch  as  the  succession  is  not  of  property  within 
the  dominion  of  the  State,  succession  to  it  cannot  be  said  to  occur  by 
permission  of  the  State.  As  to  lands  this  is  clearly  the  case,  and 
rights  in  or  power  over  tliem  are  derived  from  or  through  the  laws  of 
the  foreign  State  or  country.  As  to  goods  and  chattels  it  is  true  ;  for 
their  transmission  abroad  is  sul)ject  to  the  permission  of  and  regulated 


CHAP.     IV.]  IN    RE     ESTATE     OF     SWIFT.  30Go 

by  the  laws  of  the  State  or  country  where  actually  situated.  Juiisdic- 
tiun  over  them  belongs  to  the  courts  of  tli:il  Sluie  or  country  fur  all 
purposes  of  policy,  or  of  adminislration  in  the  interests  of  its  cit/ens, 
or  of  those  having  enforceable  rights,  and  their  surrender,  or  transmis- 
sion, is  upon  principles  of  comity. 

When  succession  to  the  owni-rsliip  of  properly  is  by  the  permission 
of  the  State,  then  tlie  pciinission  can  relate  only  to  property  over  which 
the  State  has  dominion  and  as  to  which  it  grants  the  privilege  or 
permission. 

Nor  is  the  argument  available  that,  by  the  power  of  sale  conferred 
upon  the  executors,  there  was  an  equitable  conversion  worked  of  the 
lands  in  New  Jersey,  as  of  the  time  of  the  testator's  death,  and,  hence, 
that  the  property  sought  to  be  reached  by  the  tax,  in  the  eye  of  the 
law,  existed  as  cash  in  this  State  in  the  executor's  hands,  at  the 
moment  of  the  testator's  death.  There  might  be  some  doubt  whether 
the  main  proposition  in  the  argument  is  quite  correct,  and  whether  the 
land  ilid  not  vest  in  the  residuary  legatees,  subject  to  the  execution  of 
the  power  of  sale.  But  it  is  not  necessary  to  decide  that  question. 
Neither  the  doctrine  of  equitable  conversion  of  lands,  nor  any  fiction 
of  situs  of  movables,  can  have  any  bearing  upon  the  question  under 
advisement.  The  question  of  the  jurisdiction  of  the  State  to  tax  is  one 
of  fact  and  cannot  turn  upon  theories  or  fictions;  which,  as  it  has  been 
observed,  have  no  place  in  a  well  adjusted  system  of  taxation. 

We  can  arrive  at  no  oilier  conclusion,  in  my  opinion,  than  that 
the  tax  provided  for  in  this  law  is  only  enforceable  as  to  property 
which,  at  the  time  of  its  owner's  death,  was  within  the  territorial  limits 
of  this  State.  As  a  law  imposing  a  special  tax,  it  is  to  be  strictly 
construed  against  the  State  and  a  case  must  be  clearly  made  out  for  its 
application.  We  should  incline  against  a  construction  which  might 
lead  to  double  taxation  ;  a  result  possible  and  i)robal)le  under  a  dif- 
ferent view  of  this  law.  If  the  property  in  the  foreign  jurisdiction  was 
in  land,  or  in  goods  and  chattels,  when,  upon  the  testator's  death,  a 
new  title,  or  ownership,  attached  to  it,  the  bringing  into  this  State  of 
its  cash  i)roceeds,  subsequently,  no  matter  by  what  authority  of  will, 
or  of  statute,  did  not  subject  it  to  the  tax.  A  different  view  would  be 
against  every  sound  consideration  of  what  constitutes  the  basis  for 
such  taxation,  and  would  not  accord  with  an  understanding  of  the 
intention  of  the  legislature,  as  more  or  less  plainly  expressed  in  these 
acts. 

Another  question,  which  I  shall  merely  advert  to  in  conclusion, 
arises  upon  a  ruling  of  the  surrogate  with  respect  to  appraisement,  in 
connection  with  a  clause  of  the  will  directing  that  the  amount  of  the 
tax  upon  the  legacies  and  devises  should  be  paid  as  an  expense  of 
administration.  The  appraiser,  in  ascertaining  the  value  of  the  residu- 
ary estate  for  the  purpose  of  taxation,  deducted  the  amount  of  the  tax 
to  be  assessed  on  prior  legacies.  The  surrogate  overruled  him  in  this, 
and  held  that  there  should  be  no  deduction  from  the  value  of  the  resid- 


300f  FKOTHIXGnAM     V.     SIIAW.  [cHAP.    IV. 

nan-  estate  of  the  amount  of  the  tax  to  be  assessed,  either  upon  prior 
lef^acies,  or  upon  its  value.  He  held  that  the  legacies  taxable  should 
be  reported,  irrespective  of  the  provision  of  the  will ;  and  that  a  mode 
of  payment  of  the  succession  tax  prescribed  by  will  is  something  with 
which  the  statute  is  not  concerned.  I  am  satisfied  with  his  reasoning 
and  can  add  nothing  to  its  force.  Manifestly,  under  the  law  that 
which  is  to  be  reported  by  the  appraiser  for  the  purpose  of  the  tax  is 
the  value  of  the  interest  passing  to  the  legatee  under  the  will,  without 
any  deduction  for  any  purpose,  or  uuder  any  testamentary  direction. 

A  question  is  raised  as  to  the  effect  upon  the  law,  as  contained  in 
the  acts  of  1885  and  1887,  of  the  passage  of  chapter  215  of  the  Laws 
of  1891  ;  but  as  that  has  been  the  subject  of  another  appeal,  and  is 
fully  discussed  in  the  opinion  in  the  Matter  of  the  Estate  of  Prime,  136 
N.  Y.  347.  reference  will  be  made  to  it  here. 

My  brethren  are  of  the  opinion  that  the  tax  imposed  under  the  act  is 
a  tax  on  the  right  of  succession,  under  a  will,  or  by  devolution  in  case 
of  intestacy  ;  a  view  of  the  law  which  my  consideration  of  the  question 
precludes  my  assenting  to. 

They  concur  in  my  opinion  so  far  as  it  relates  to  the  imposition  of  a 
tax  upon  real  estate  situated  out  of  this  State,  although  owned  by  a 
decedent,  residing  here  at  the  time  of  his  decease ;  holding  with  me 
that  taxation  of  such  was  not  intended,  and  that  the  doctrine  of  equi- 
table conversion  is  not  applicable  to  subject  it  to  taxation.  But  as  to 
the  personal  property  of  a  resident  decedent,  wheresoever  situated, 
whether  within  or  without  the  State,  they  are  of  the  opinion  that  it  is 
subject  to  the  tax  imposed  by  the  act. 

The  judgment  below,  therefore,  should  be  so  modified  as  to  exclude 
from  its  operation  the  personal  property  in  New  Jersey,  and,  as  so 
modified,  it  should  be  aflBrmed,  without  costs  to  either  party  as  against 
the  other.^ 


FROTHINGHAM  v.    SHAW. 
Supreme  Judicial  Court  of  Massachusetts.     1899. 

[Reported   175  Massachusetts,  59.] 

Morton,  J.  This  is  a  petition  by  the  plaintiff,  as  executor  of  the 
will  of  one  Joseph  Frothinghara,  for  instructions  in  regard  to  the  pay- 
ment of  a  collateral  inheritance  tax  on  the  residuary  legacies.  The 
case  was  heard  on  agreed  facts,  and  comes  here  by  successive  appeals 
from  decrees  of  the  probate  court  and  of  a  single  justice  of  this  court 
finding  that  the  tax  was  payable,  and  directing  the  executor  to  pay  the 
same.  At  the  time  of  his  death  the  testator  was  domiciled  at  Salem, 
in  this  Commonwealth,  and  his  estate,  except  certain  real  estate  situ- 

i  See  In  re  Bronson,  150  N.  Y.  1.  —  Ed. 


CHAP.    IV.]  FROTiriXOHAM    V.    SHAW.  30Gg 

ated  here,  and  appraised  at  82100,  and  cash  in  a  savings  bank  in 
Salem  amuuiiting  to  S'J'J.'J,  was,  and  lor  many  years  had  been,  in  the 
hands  of  his  agents  in  New  York,  and  consisted  of  bonds  and  cjtock 
of  foreign  corporations,  a  certificate  of  indebtedness  of  a  foreign  cor- 
poration, bond  secured  by  mortgage  on  real  estate  in  New  Hampshire, 
the  makers  living  in  New  York,  and  of  cash  on  deposit  with  a  savings 
bank  and  with  indivithiuls  in  Brooklyn  ;  the  total  being  upwards  of 
840,000.  There  has  been  no  administration  in  New  York,  and  the 
petitioner  has  taken  possession  of  all  the  property  except  the  real 
estate,  and  has  paid  all  of  the  debts  and  legacies  except  the  residuary 
legacies.  None  of  the  legacies  are  entitled  to  exemption  if  otherwise 
liable  to  the  tax.  The  appellants  contend  that  the  stocks,  bonds,  etc., 
were  not  "  propertv  within  the  jurisdiction  of  the  Commonwealth," 
within  the  meaning  of  St.  1891,  c  425,  §  1,  and  that,  if  they  were,  the 
succession  took  place  by  virtue  of  the  law  of  New  York,  and  not  of 
this  State.  It  is  clear  that,  if  the  question  of  the  liability  of  the  tes- 
tator to  be  taxed  in  Salem  for  the  property  had  arisen  during  his  life- 
time, he  would  have  been  taxable  for  it  under  Pub.  St.  c.  11,  §§4,  20, 
notwithstanding  the  certificates,  etc.,  were  in  New  York  (Kirkland  v. 
Hotchkiss,  100  U.  S.  491  ;  State  Tax  on  Foreign-Held  Bonds  Case, 
15  Wall.  300;  Cooley,  Tax'n  [2d  ed.],  371);  and  the  liability  would 
have  extended  to  and  included  the  bonds  secured  by  mortgage  (Kirk- 
land V.  Hotchkiss,  supra ;  State  Tax  on  Foreign-Held  Bonds  Case, 
supra;  Hale  v.  Commissioners,  137  Mass.  111).  It  is  true  that  the 
Public  Statutes  provide  that  personal  propert}',  wherever  situated, 
whether  within  or  without  the  Commonwealth,  shall  be  taxed  to  the 
owner  in  the  place  where  he  is  an  inhabitant.  But  it  is  obvious  that 
the  legislature  cannot  authorize  the  taxation  of  property-  over  which  it 
has  no  control,  and  the  principle  underlying  the  provision  is  that 
personal  property  follows  the  person  of  the  owner,  and  properly  may 
be  regarded,  therefore,  for  the  purposes  of  taxation,  as  having  a  situs 
at  his  domicile,  and  as  being  taxable  there.  After  the  testator's  death 
the  property  would  have  been  taxable  to  his  executors  for  three  years, 
or  till  distributed  and  paid  over  to  those  entitled  to  it,  and  notice 
thereof  to  the  assessors  ;  showing  that  the  fiction,  if  it  is  one,  is  con- 
tinued for  the  purposes  of  taxation  after  the  owners  death.  Pub.  St. 
c.  11,  §  20,  cl.  7;  Hardy  v.  Inhabitants  of  Yarmouth,  6  Allen,  277. 
In  the  present  case  the  tax  is  not  upon  property-  as  such,  but  upon  the 
privilege  of  disposing  of  it  by  will,  and  of  succeeding  to  it  on  the 
death  of  the  testator  or  intestate  ;  and  it  '•  has,"  as  was  said  in  Minot 
V.  Winthrop,  infra,  '•  some  of  the  characteristics  of  a  duty  on  the 
administration  of  the  estates  of  deceased  persons."  Minot  v.  Win- 
throp, 162  Mass.  113;  Callahan  v.  Woodbridge,  171  Mass.  595; 
Greves  v.  Shaw,  173  Mass.  205;  Mood}'  v.  Shaw,  173  Mass.  375.  In 
arriving  at  tlie  amount  of  the  tax,  the  property  within  the  jurisdiction 
of  the  Commonwealth  is  considered,  and  we  see  no  reason  for  suppos- 
ing that  the  legislature  intended  to  depart  from  the  principle  heretofore 


306ll  FKOTHIT^GHAM    V.    SHAW.  [cHAP,    TV. 

adopted,  which  regards  personal  property,  for  the  purposes  of  taxation, 
as  having  a  situs  at  the  domicile  of  its  owner.     This  is  the  general  rule 
(Cooley/rax'n  [•2d  ed.],  372),  and,  though  it  may  and  does  lead  to 
double  taxation,  that  has  not  been  accounted  a  sufficient  objection  to 
taxing  personal  property  to  the  owner  during  his  life  at  tlie  place  of 
iiis  domicile,  and  we  do  not  see  that  it  is  a  sufficient  objection  to  tlie 
imposition    of  succession  taxes   or    administration   duties,   under  like 
circumstances,  after  his  death.     In  regard  to  the  mortgage  bonds,  it 
is  to  be  noted,  in  addition  to  what  has  been  said,  that  this  case  differs 
from   Callahan    v.    Woodbridge,   supra.     In   that   case   the   testator's 
domicile  was  in  New  York,  and  it  does  not  appear  from  the  opinion 
that  the  note  and  mortgage  deed  were  in  this  State.     In  this  case  the 
domicile  was  in  this  Commonwealth,  and  we  think  that,  for  the  purposes 
of  taxation,  the  mortgage  debt  may  be  regarded  as  having  a  situs  here. 
This  is  the  view  taken  in  Hanson,  Death  Duties  (4th  ed.),  239,  240, 
which  is  cited  apparently  with  approval  by  Mr.  Dicey,  though  he  calls 
attention  to  cases  which  may  tend  in  another  direction.     See  Dicey, 
Confl.   Laws,    319,  note  1.     It   seems  to  us,   therefore,    that  for  the 
purposes  of    the  tax  in  question  the    property  in   the   hands  of  the 
executor  must  be  regarded  as  having  been  within  the  jurisdiction  of 
this  Commonwealth  at   the  time  of  the  testator's  death.     See   In  re 
Swift,  137  N.  Y.  77  ;  In  re  Miller's  Estate,  182  Pa.  St.  162. 

The  petitioner  further  contends  that  the  succession  took  place  by 
virtue  of  the  law  of  New  Y'ork.     But  it  is  settled  that  the  succession  to 
movable  property  is  governed  by  the  law  of  the  owner's  domicile  at 
the  time  of  his  death.     This,  it  has  been  often  said,  is  tlie  universal 
rule,  and  applies  to  movables  wherever  situated.     Stevens  v.  Gaylord, 
11  Mass.  256  ;  Dawes  v.  Head,  3  Pick.   129,  144,  145  ;  Fay  v.  Haven, 
3  Mete.  (Mass.)   109;   Wilkins  v.   Ellett,  9  Wall.   740;  id.  108  U.  S. 
256  ;  Freke  v.  Carbery,  L.  R.  16  Eq.  461 ;  Attorney-General  v.  Camp- 
bell,'L.  R.  5  H.  L.  524;  Duncan  v.  Lawson,  41  Ch.  Div.  394;  Sill  v. 
Worswick,  1  H.  Bl.  690  ;  Dicey,  Confl.  Laws,  683  ;  Story,  Confl.  Laws 
(7th  ed.),  §§  380.  481.     If  there  are  movables  in  a  foreign  country, 
the  law  of  the  domicile  is  given  an  extra-territorial  effect  by  the  courts 
of  that  country,  and  in  a  just  and  proper  sense  the  succession  is  said 
to  take  place  by  force  of,  and  to  be  governed  by,  the  law  of  the  douii- 
cile.     Accordingly  it  has  been  held  that  legacy  and  succession  duties, 
as  such,  were  payal)le  at  tlie  place  of  domicile  in  respect  to  movable 
property  wherever  situated,  because  in   such  cases  the  succession  or 
legacy  tcwk  eff"ect  by  virtue  of  the  law  of  domicile.     Wallace  v.  Attor- 
ne^y-General  (1865)  1  Cli.  App.  1  ;  Dicey,  Confl.  Laws,  785;   Hanson, 
Death  Duties  (4th  ed.),  423,  526.     With  probate  or  estate  or  adminis- 
tration duties,  as  such,  it  is  different.     They  are  levied  in  respect  of 
the  control  which  every  government   has  over  the  property  actually 
situated  within  its  jurisdiction,  irrespective  of  the  place  of  domicile. 
Laidley  v.   Lord  Advocate,    15  App.  Cas.  468,   483;  Hanson,  Death 
Duties  (4th  ed.),  2,  Oo.     Of  course,  any  state  or  country  may  impose 


OIIA!'.     IV.]  FKOTHINOIIAM     I'.     SHAW.  300l 

a  tax,  and  give  it  such  name  or  no  name  as  it  chooses,  which  shall 
euiljrace,  if  so  intemk-d,  the  various  grounds  upon  which  taxes  are  or 
may  be  levied  in  respect  of  the  devolution  of  estates  of  deceased 
persons,  and  which  shall  be  leviable  according  as  the  facts  in  each 
particular  case  warrant.  In  England,  for  instance,  the  ''  estate  duty," 
as  it  is  termed,  under  the  Finance  Act  of  1891  (57  «fe  58  Vict.  c.  '30),  has 
largely  superseded  the  probate  duty,  and  under  some  circumstances 
takes  the  place  of  the  legacy  and  succession  duty  also.  Hanson,  Death 
Duties  (4th  ed.),  G2,  63,  81.  But,  whatever  the  form  of  the  tax,  the 
succession  takes  i)lace  and  is  governed  by  the  law  of  the  domicile,  and 
if  the  actual  situs  is  in  a  foreign  country,  the  courts  of  that  country 
cannot  annul  the  succession  established  by  the  law  of  the  domicile. 
Dammert  v.  Osborn,  141  N.  Y.  564.  In  further  illustration  of  the 
extent  to  which  the  law  of  the  domicile  operates,  it  is  to  be  noted  that 
the  domicile  is  regarded  as  the  place  of  principal  administration,  and 
any  other  administration  is  ancillary  to  that  granted  there.  Payment 
by  a  foreign  debtor  to  the  domiciliary  administrator  will  be  a  bar  to  a 
suit  brought  by  an  ancillary  administrator  subsequently  appointed. 
Wilkins  r.  EUett,  supra;  Stevens  v.  Gaylord,  supra;  Hutchins  v. 
Bunk.  12  iMetc.  (Mass.)  421  ;  iMartin  c.  Gage,  147  Mass.  204.  And 
the  domiciliary  administrator  has  sufficient  standing  in  the  courts  of 
another  State  to  appeal  from  a  decree  appointing  an  ancillary  adminis- 
trator. Smith  V.  Sherman,  4  Gush.  408.  Moreover,  it  is  to  be  observed 
—  if  that  is  material  —  that  there  has  been  no  administration  in  New 
York,  that  the  executor  was  ai)pointed  here,  and  has  taken  possession 
of  the  property  by  virtue  of  such  appointment,  and  must  distribute  it 
and  account  for  it  according  to  the  decrees  of  the  courts  of  this  Com- 
monwealth. To  say,  therefore,  that  the  succession  has  taken  place  by 
virtue  of  the  law  of  New  York,  would  be  no  less  a  fiction  than  the 
petitioner  insists  that  the  maxim,  Mobilia  seqimntur  personam,  is 
when  applied  to  matters  of  taxation.  The  petitioner  contends  that  in 
Calhihan  v.  Woodbridge,  supra,  it  was  held  that  the  succession  to  the 
personal  property  in  this  State  took  place  by  virtue  of  the  law  of  this 
State,  although  the  testator  was  domiciled  in  New  York.  We  do  not 
so  understand  that  case.  That  case  and  Greves  x\  Shaw,  supra,  and 
Moody  V.  Shaw,  supra,  rest  on  the  right  of  a  State  to  impose  a  tax  or 
duty  in  respect  to  the  passing  on  the  death  of  a  non-resident  of  personal 
property  belonging  to  him,  and  situated  within  its  jurisdiction.  We 
think  tiiat  the  decree  should  be  affirmed.^  So  ordered. 

1  For  the  English  doctrines  as  to  the  effect  of  their  Revenue  Laws  on  non-residents 
and  on  foreign  jiroperty,  see  Dicey,  Conflict  of  Laws,  781. 

For  cases  on  the  Income  Tax,  see  Calcutta  Jute  Mills  i-.  Nicholson,  1  E.x.  D.  428; 
Cohiuhoun  I'.  Brooks,  14  .\pp.  Cas.  493.  On  Prohate  Duty,  .see  Att.-Gen.  r.  Hope, 
10.  M.  &  R.  530;  Sudeley  v.  .Att.-Gen.,  [1 81*7]  A.  C.  11.  On  Legacy  Duty,  see 
Thom[)son  v.  Adv.-Gen.,  i2  CI.  &  F.  1  ;  Chatfield  v.  Rerchtoldt.  L.  R.  7  Ch.  192. 
On  Succession  Duties,  see  Att.-Gen.  v.  Campbell,  L.  R.  5  H.  L.  524  ;  Wallace  v.  Att.- 
Gen.,  L.  R.  1  Ch.  1.  —  Ed. 


S06j  MATTER    OF     COOLEY.  [CHAP.     IV. 


MATTER  OF   COOLEY. 
Court  of  Appeals,  Xew  York.     1906. 
[Reported  186  N.  Y.  220.] 

HiscocK,  J.  The  appellants  complain  because  in  fixing  the  transfer 
tax  upon  certain  shares  of  the  capital  slock  of  the  Boston  and  Alban\' 
Railroad  Company  which  belonged  to  the  estate  and  passed  under  the 
will  of  the  deceased  who  was  a  non-resident,  said  stock  has  been  ap- 
praised at  its  full  market  value  as  representing  an  interest  in  the  prop- 
erty of  said  corporation  situate  both  in  the  State  of  New  York  and 
elsewhere.  It  is  insisted  by  them  that  under  the  peculiar  facts  of  this 
case  the  valuation  placed  for  such  purpose  upon  the  stock  should  not 
have  been  predicated  upon  the  idea  that  the  latter  represented  an  in- 
terest in  all  of  the  property  of  said  corporation,  but  should  have  been 
fixed  upon  the  theory  that  it  represented  an  interest  in  only  a  portion 
of  said  property. 

I  think  that  their  complaint  is  well  founded  and  that  the  order 
appealed  from  should  be  reversed  and  the  assessment  corrected 
according!}-. 

The  Boston  and  Albany  Railroad  Compan}-  is  a  consolidation  formed 
by  the  merger  of  one  or  more  New  Y'ork  corporations  and  one  Massa- 
chusetts corporation.  The  merger  was  authorized  and  the  said  consoli- 
dated corporation  duh'  and  separately  created  and  organized  under  the 
laws  of  each  state.  It  was,  so  to  speak,  incorporated  in  duplicate. 
There  is  but  a  single  issue  of  capital  stock  representing  all  the  prop- 
erty- of  the  consolidated  and  dual  organization.  Of  the  track  mileage 
about  five-sixths  is  in  Massachusetts  and  one-sixth  in  New  Y"ork.  The 
principal  offices,  including  the  stock  transfer  office,  are  situated  in 
Boston,  and  there  also  are  regularly  held  the  meetings  of  its  stock- 
holders and  directors.  The  deceased  was  a  resident  of  the  State  of 
Connecticut,  and  owned  four  hundred  and  twenty-six  shares  of  the 
capital  stock,  the  value  of  which  for  the  purposes  of  the  transfer  tax 
was  fixed  at  the  full  market  value  of  8252.50  per  share  of  the  par  value 
of  8100. 

The  provisions  of  the  statute  (L.  1896,  ch.  908,  §  220,  as  arad.  L. 
1897,  ch.  284,  §  2),  authorizing  the  imposition  of  this  tax  are  familiar, 
and  read  in  part  as  follows : 

"  A  tax  shall  be  and  is  hereby  imposed  upon  the  transfer  of  any 
property,  real  or  personal,  of  the  value  of  five  hundred  dollars  or  over, 
or  of  any  interest  therein  ...  in  the  following  cases  :  .  .   . 

"  2.  When  the  transfer  is  by  will  or  intestate  law,  of  property  within 
the  State,  and  the  decedent  was  a  non-resident  of  the  State  at  the  time 
of  his  death." 

The  present  assessment  is  under  the  last  clause,  and  as  alread}'  inti- 


ClfAP.    IV.]  MATTER    OF    COOT.EY.  30Gk 

mated,  the  sole  question,  stated  in  practical  form,  is  whether  the 
authorities  of  tliis  Slate  ought  to  levy  a  tax  upon  the  full  value  of  de- 
cedent's holdings,  recognizing  simply  the  New  York  corporation  and 
regarding  it  as  the  sole  owner  of  all  of  the  propert}'  of  the  doubly  in- 
corporated New  York-Massachusetts  corporation,  or  whether  the}' 
should  limit  the  tax  to  a  portion  of  the  total  value,  ui)on  the  theory  that 
the  company  holds  its  property  in  Massachusetts  at  least  under  its 
incorporation  in  that  State. 

By  seeking  the  aid  of  our  laws  and  becoming  incorporated  under 
them,  the  consolidated  Boston  and  Albany  Railroad  Company  became 
a  domestic  corporation.     (Matter  of  Sage,  70  N.  Y.  220.) 

The  decedent,  therefore,  as  the  owner  of  Boston  and  Albany  stock, 
ma}'  be  regarded  as  holding  stock  in  a  domestic  corporation,  and  it  is  so 
clearly  settled  that  we  need  only  state  the  proposition  that  capital  stock 
in  a  domestic  corporation,  although  held  by  a  non-resident,  will  be  re- 
garded as  having  its  situs  where  the  corporation  is  organized,  and  is, 
therefore,  taxable  in  this  State.     (Matter  of  Bronson,  150  N.  Y.  1.) 

There  is,  therefore,  no  question  but  that  the  decedent,  holding  stock 
in  the  Boston  and  Albany  road,  which  was  incorporated  under  the  laws 
of  this  State,  left  "  property  within  the  State  "  which  is  taxable  here. 
There  is  no  doubt  about  the  meaning  of  "  property  within  the  State," 
as  applied  to  this  situation,  or  that  it  justifies  a  taxation  by  our  au- 
thorities of  decedent's  interest  as  a  shareholder  in  the  corporation 
created  under  the  laws  of  this  State.  The  only  doubt  is  as  to  the 
extent  and  value  of  that  interest  for  the  purposes  of  this  proceeding. 
For,  altliough  the  tax  is  upon  the  transfer  and  not  upon  the  property 
itself,  still  its  amount  is  necessarily  measured  by  the  value  of  the 
property  transferred,  and,  therefore,  we  come  to  consider  briefly  the 
nature  of  the  stock  here  assessed  as  property  and  the  theory  upon 
which  its  value  should  be  computed. 

The  general  nature  of  a  shareholder's  interest  in  the  capital  stock  of 
a  corporation  is  easily  understood  and  defined.  In  Plympton  v.  Bige- 
low  (93  N.  Y.  592)  it  is  said  that  '■•  The  right  which  a  shareholder  in  a 
corporation  has  by  reason  of  his  ownership  of  shares  is  a  right  to  par- 
ticipate according  to  the  amount  of  his  stock  in  the  surplus  profits  of 
the  corporation  on  a  division,  and  ultimately  on  its  dissolution,  in  the 
assets  remaining  after  payment  of  its  debts." 

In  Jerraain  v.  L.  S.  &  M.  S.  Ry.  Co.  (91  N.  Y.  483,  491)  it  was 
said  :  "  A  share  of  stock  represents  the  interest  which  the  shareholder 
has  in  the  capital  and  net  earnings  of  the  corporation." 

Therefore,  since  the  shares  of  capital  stock  under  discussion  repre- 
sented a  certain  interest  in  the  surplus  of  assets  over  liabilities  of  the 
Boston  and  Albany  Railroad  Com[)any,  the  value  of  that  stock  is  to  be 
decided  by  reference  to  the  amount  of  property  which  said  railroad  com- 
pany as  incorporated  in  this  State  is  to  be  regarded  as  owning  for 
the  jiurposes  of  this  proceeding. 


30C)1  MATTER     OF     COOLEY.  [cUAP,     IV. 

In  the  majoriU'  of  cases  at  least  a  corporation  has  but  a  single 
eoiDorate  creation  and  existence  under  the  laws  of  one  State,  and  by 
virtue  of  suc-h  single  existence  owns  all  of  its  corporate  property. 
There  is  no  difficulty  in  determining  in  such  a  case  that  a  shareholder 
under  such  an  incorporation  has  an  interest  in  all  of  the  corporate 
property  wherever  and  in  how  many  different  States  situated.  I  shall 
have  occasion  to  refer  to  that  principle  hereafter  in  another  connection. 
Even  in  the  case  of  a  corporation  incorporated  and  having  a  separate 
existence  under  the  laws  of  more  than  one  State,  the  stockhohler  would 
for  some  purposes  be  regarded  as  having  an  interest  in  all  the  cor- 
porate property  independent  of  the  different  incorporations.  In  the 
present  case  the  decedent,  by  virtue  of  his  stock  as  between  him 
and  the  corporation,  would  be  regarded  as  having  an  interest  in  all  of 
its  property  and  entitled  to  the  earnings  thereon  when  distributed  as 
dividends  and  to  his  share  of  the  surplus  upon  dissolution  and  liquida- 
tion proceedings  independent  of  the  fact  that  there  were  two  separate 
incorporations. 

But,  as  it  seems  to  me,  different  considerations  and  principles  apply 
to  this  proceeding  now  before  us  for  review.     Our  jurisdiction  to  assess 
decedent's  stock  is  based  solely  and  exclusively  upon  the  theory  that 
it  is  held  in  the  Boston  and  Albany  Railroad  Company  as  a  New  York 
corporation.     The  authorities  are  asserting  jurisdiction  of  and  assessing 
his  stock  only  because  it  is  held  in  the  New  York  corporation  of  the 
Boston  and  Albany  Railroad  Company.     But  we  know  that  said  com- 
pany is  also  incorporated  as  a  Massachusetts  corporation,  and  presum- 
ably by  virtue  of  such  latter  incorporation  it  has  the  same  powers  of 
owning  and  managing  corporate  property  which  it  possesses  as  a  New 
York  corporation.     In  fact  the  location  of  physical  property  and  the 
exercise  of  various  corporate  functions  give  greater  imi)ortance  to  the 
Massachusetts  than  to  the  New  York  corporation,  and  the  problem  is 
whether  for  the  purpose  of  levying  a  tax  upon  decedent's  stock  upon 
the  theory  that  it  is  held  in  and  under  the  New  York  corporation  we 
ought  to  say  that  such  latter  corporation  owns  and  holds  all  of  the 
property  of  the  consolidated  corporation  wherever  situated,  thus  entirely 
ignoring  the  existence  of  and  the  ownership  of  property  by  the  Massa- 
chusetts corporation.     It  needs  no  particular  illumination  to  demon- 
strate that  if  we  take  such  a  view  it  will  clearly  pave  the  way  to  a 
corresponding  view  by   the  authorities  and  courts  of  Massachusetts 
that  the  corporation  in  that  State  owns  all  of  the  corporate  property 
wherever  situated,  and  we  shall  then  further  and  directly  be  led  to  the 
unreasonable  and  illogical  result  that  one  set  of  property  is  at  the  same 
tmie  solely  and  exclusively  owned  by  two  different  corporations,  and 
that  a  person  holding  stock  should  be  assessed  upon  the   full  value  of 
his  stock  in  each  jurisdiction.     Whether  we  regard  such  a  tax  as  is 
here  being  imposed,  a  recompense  to  the  State  for  protection  afforded 
during  the  life  of  the  decedent  or  as  a  condition  imposed  for  creating 


CM!AI'.    IV.]  MAT'IKIJ    OF    COOLEY.  300lll 

and  :ill(nvinfr  ccitiiin  rights  of  transfer  or  of  succession  to  property  upon 
death,  we  sliall  have  each  Slate  exacting  full  compensation  upon  one 
succession  antl  a  clear  case  of  (loiil)le  taxation.  And  if  the  corporation 
had  been  c<>inpeUed  for  sullicieiil  reasons  t(j  tidie  out  incorporation  in 
six  or  twenty  other  States  eacii  one  of  th<'ni  might  taiie  liie  same  view 
and  insist  u\)on  the  same  exaction  until  the  value  of  the  property  was 
in  whole  or  large  pro|)ortion  exhausted  in  paying  for  the  [jrivile'^e 
of  succession  to  it.  While  undoul»t(MUy  the  legislalivt;  auliiority  is 
potent  enough  to  prescrilu;  and  enforce  double  taxation,  it  is  plain  th:it, 
measured  by  ordinary  principles  of  justice,  the  result  suggested  would 
be  inequitable  and  might  l)e  seriously  burdensome. 

Doul)le  taxation  is  one  which  the  courts  should  avoi^  whenever  it  is 
possible  within  reason  to  do  sr^.      (Matter  of  James,  144  N.  Y.  G,  11.) 

It  is  never  to  be  presumed.  Sometimes  tax  laws  have  that  effect, 
but  if  they  do  it  is  because  the  legislature  has  unmistakal)ly  so  enacted. 
All  presum[)tions  are  against  such  an  imposition.  (Tennessee  v.  Whit)- 
worth,  117  U.  S.  129.) 

The  law  of  taxation  is  to  be  construed  strictly  against  the  State  in 
favor  of  the  taxpayer,  as  represented  by  the  executor  of  the  estate. 
(Matter  of  Fayeiweather,  143  N.  Y.  114.) 

It  seems  pretty  clear  that  within  the  principles  of  the  foregoing  and 
many  other  cases  which  might  be  cited,  we  ought  not  to  sanction  a 
course  which  will  lead  to  a  tax,  measured  by  the  full  value  of  the  dece- 
dent's stock  in  each  State  upon  the  conflicting  theories  that  the  corpo- 
ration in  that  State  owns  all  of  the  property  of  the  consolidated 
company,  unless  there  is  something  in  the  statute,  or  decisions  under 
the  statut(!,  whit;h  com|)els  us  so  to  do.  I  do  not  think  there  is  in 
either  place  such  compelling  authority. 

No  doubt  is  involved,  as  it  seems  to  me,  about  the  meaning  and  ap- 
plication of  the  statute.  The  decedent's  stock  was  "property  within 
the  State,"  which  had  its  sitiiftlmve  as  being  held  in  the  New  York  cor- 
poration, and  the  transfer  of  it  was  taxable  here.  Tliere  can  be  no 
dispute  about  that.  The  question  is  simply  over  the  extent  and  value 
of  his  interest  as  such  stockholder,  in  view  of  the  other  incorporation 
in  Massachusetts.  I  see  nothing  in  the  statute  which  prevents  us  fi-om 
paying  decent  regard  to  the  principles  of  interstate  comity,  and  from 
adopting  a  policy  which  will  enable  each  State  fairly  to  enforce  its  own 
laws  without  oppression  to  the  subject.  This  result  will  be  attained  l)y 
regarding  the  New  York  corporation  as  owning  the  property  situate  in 
New  York  and  tiie  ^lassachusetts  corporation  as  owning  tiiat  situate  in 
Massachusetts,  and  each  as  owning  a  share  of  any  pro[)erty  situate  out- 
side of  either  State  or  moving  to  and  fro  between  tlie  two  States,  and 
assessing  decedent's  stock  upon  that  theory.  That  is  the  obvious  basis 
for  a  valuation  if  we  are  to  leave  any  room  for  the  Massachusetts 
corporation  and  for  a  taxation  by  that  State  similar  in  principle  to  our 
own  without  double  taxation. 

It* 


30Gn  MATTER    OF    COOI.EY.  [CIIAP.    IV. 

Some  illustrations  may  be  referred  to  which  by  analogy  sustain  the 
general  principles  involved. 

Where  a  tax  is  levied  in  this  State  upon  the  capital  or  franchises  of 
a  corporation  organized  as  this  railroad  was,  the  tax  is  levied  upon  an 
equitable  basis.  Thus  by  the  provisions  of  section  G  of  chapter  19  of 
the  Laws  of  1869,  under  which  the  Boston  and  Albany  railroad  was 
organized,  the  assessment  and  taxation  of  its  capital  stock  in  this  State 
is  to  be  in  the  proportion  "that  the  number  of  miles  of  its  railroad 
situated  in  this  State  bears  to  the  number  of  miles  of  its  railroad 
situated  in  the  other  State."  and  under  section  182  of  the  General  Tax 
Law  of  the  State  of  New  York  the  franchise  tax  of  a  corporation  is 
based  upon  the  ^mount  of  capital  within  the  State. 

Asain,  assume  tluit  for  purposes  of  dissolution  or  otherwise,  re- 
ceivers were  to  be  appointed  of  the  Boston  and  Albany  railroad,  there 
can  be  no  doubt  that  the  receivers  of  it  as  a  New  York  corporation 
would  be  appointed  by  the  courts  of  that  State,  and  the  receivers  of  it 
as  a  Massachusetts  corporation  would  be  appointed  by  the  courts  of 
that  State,  and  that  the  courts  would  hold  that  in  the  discharge  of  their 
duties  the  New  York  receivers  should  take  possession  of  and  admin- 
ister upon  the  property  of  the  New  York  corporation  within  the  limits 
of  that  State,  and  would  not  permit  the  Massachusetts  receivers  to 
come  within  its  confines  and  interfere  with  such  ownership,  and  the 
Massachusetts  courts  would  follow  a  similar  policy.  "Why  should  not 
the  State  authorities  for  purposes  of  this  sijecies  of  taxation  and  valua- 
tion, involved  therein,  adopt  a  similar  theory  of  division  of  property? 

We  are  not  apprehensive  lest,  as  suggested,  New  York  corpora- 
tions may  take  out  incorporation  in  other  States  for  the  purpose  of  ex- 
empting transfers  of  their  capital  stock  from  taxation  under  the 
principles  of  this  decision.  We  do  not  regard  our  decision  as  giving 
encouragement  to  any  such  course.  It  is  based  upon  and  limited  by 
the  facts  as  they  are  here  presented,  and  there  is  no  question  whatever 
but  that  the  Boston  and  Albany  railroad,  in  good  faith  and  for  legitimate 
reasons,  was  equally  and  contemporaneously  created  both  as  a  New 
Y''ork  and  a  Massachusetts  corporation.  It  can  no  more  be  said  that 
being  originally  and  properly  a  New  York  corporation  it  subsequently 
and  incidentally  became  a  Massachusetts  one  than  could  be  maintained 
the  reverse  of  such  proposition.  If  in  the  future  a  corporation  created 
and  organized  under  the  laws  of  this  State,  or  properly  and  really  to 
be  regarded  as  a  New  York  corporation,  shall  see  fit  either  for  the  pur- 
pose suggested,  or  for  any  other  reason  subsequently  and  incidentally 
and  for  ancillary  reasons,  to  take  out  incorporation  in  another  State,  a 
case  would  arise  not  falling  within  this  decision. 

But  it  is  said  that  this  court  has  already  made  decisions  which  pre- 
vent it  from  adopting  such  a  construction  as  I  have  outlined,  and 
reference  is  made  to  Matter  of  Bronson  (150  N.  Y.  1)  and  Matter  of 
Palmer  (183  N.  Y.  238). 


CHAP. 


IV.]  MATTER    OF    COOLEY.  30Go 


I  do  not  find  anything  in  those  decisions  which,  interpreted  as  a 
whole,  with  reference  to  the  facts  there  being  discussed,  conflicts  with 
the  views  which  I  have  advanced. 

In  the  lirst  case  the  question  arose  whether  a  tax  might  be  imposed 
upon  a  transfer  of  a  non-resident  decedent's  residuary  estate  which 
"  consisted  in  shares  of  the  capital  stock  and  in  the  bonds  of  corpora- 
tions incorporated  under  the  laws  of  this  State."  So  far  as  the  discus- 
sion relates  to  the  question  of  taxing  the  bonds,  it  is  immaterial.  It 
was  held  that  the  shares  of  capital  stock  were  property  which  was  taxa- 
ble, it  being  said  :  *'  The  shareholders  are  persons  who  are  interested  in 
the  operation  of  the  corporate  property  and  franchises,  and  their  shares 
actually  represent  undivided  interests  in  the  corporate  enterprise.  The 
corporation  has  the  legal  title  to  all  the  properties  acquired  and  appurte- 
nant, but  it  holds  them  for  the  pecuniary  benefit  of  those  persons  who 
hold  the  capital  stock.  .  .  .  Each  share  represents  a  distinct  interest 
in  the  whole  of  the  corporate  property."  In  other  words,  Judge  Gray, 
in  writing  the  majority  opinion,  was  discussing  the  situation  of  a  share- 
holder in  a  domestic  cori)oratiou  which,  so  far  as  appears,  was  not 
incorporated  under  the  laws  of  another  State.  Under  such  circum- 
stances, of  course,  the  New  York  corporation  would  be  the  owner  of 
all  the  property  there  was,  and  the  shareholders  interest  in  such  corpo- 
ration would  represent  his  interest  in  all  of  said  property  and  be  fairly 
and  justly  taxable  upon  its  full  amount  and  value.  No  such  situation  was 
presented  as  here  arises.  There  was  no  second  or  third  corporation 
under  the  laws  of  another  State,  which  corporation  might  just  as  fairly 
be  said  to  be  the  owner  of  all  the  property  as  the  New  York  corpora- 
tion, thus  raising  the  question  here  presented  whether  each  corporation 
should  be  regarded  as  owning  and  holding  all  of  the  property  there 
was  for  the  purpose  of  laying  the  basis  for  taxation,  or  whether  we 
should  adopt  an  equitable  and  reasonable  view,  giving  credit  to  each 
corporation  for  the  purpose  of  taxation  of  owning  some  certain  portion 
of  the  entire  property. 

In  the  Palmer  case  again  the  question  arose  over  taxing  shares  of 
stock  held  by  a  non-resident  decedent  in  a  domestic  corporation  which 
was  not  proved  or  considered  to  have  been  incorporated  under  the 
laws  of  another  State.  It  was  insisted  that  the  amount  of  the  tax 
should  be  reduced  by  the  proportion  of  property  owned  by  the  corjio- 
ration  and  located  in  other  States,  and  tliis  contention  was  overruleil, 
and,  as  it  seems  to  me,  for  a  perfectly  good  reason  upon  the  facts  in 
that  case  and  which  is  not  applicable  to  the  facts  here.  As  stated, 
there  was  a  single  incorporation  under  the  laws  of  this  State,  and  that 
domestic  corporation  owned  all  of  the  property  in  whatever  State  situ- 
ated. Its  corporate  origin  was  under  the  laws  of  this  State,  and  there 
its  corporate  existence  was  centred.  It  just  as  fully  and  completely 
owned  and  managed  property  situated  in  the  State  of  Ohio  as  if  it  was 
situated  in  the  State  of  New  York,  and  if  the  property  in  the  foreign 


306p  MATTER    OF    COOLEY.  [cHAP,    TV. 

State  was  reduced  to  money,  such  money  would  be  turned  into  its 
treasury  in  the  State  of  New  York.  Under  such  circumstances  there 
was  nothing  else  that  could  reasonably  be  held  than  that  the  corpora- 
tion owned  all  i)ro[)erty  wherever  situated,  and  that  the  sliarehold- 
er's  interest  in  such  corporation  re[)resenLed  and  was  based  ui)<)n  such 
ownership  of  all  the  property.  There  was  no  double  incorporation  and 
no  chance  for  conflict  between  an  incorporation  under  the  laws  of  this 
State  and  a  second  one  existing  under  tlie  laws  of  another  State,  which 
must  either  l>e  reconciled  by  a  just  regard  for  the  rights  of  both  States 
and  the  rights  of  the  incorporation  under  each,  or  else  double  taxation 
imposed  upon  a  shareholder. 

It  is  also  argued  that  the  courts  of  INIassachusetts  have  passed  upon 
the  very  contention  here  being  made  by  appellants,  and  in  the  case  of 
Moody  '•.  Shaw  (173  Mass.  375)  have  rejected  the  claim  that  the  valu- 
ation of  stock  in  this  same  corporation  for  tlie  purjjoses  of  transfer 
taxation  in  Massachusetts  should  be  based  upon  any  apportionment  of 
property  between  the  Massachusetts  and  New  York  corporations. 
The  opinion  in  that  case  does  not  seem  to  warrant  any  such  con- 
struction. Apparently  the  only  question  under  discussion  was  whether 
the  transfer  of  stock  in  such  corporation  was  taxable  at  all  in  Massa- 
chusetts, and  the  question  of  any  apportionment  was  not  passed  upon. 
Such  expressions  as  are  found  in  the  opinion  touching  that  point  cer- 
tainlv  do  not  indicate  to  my  mind  that  if  involved  and  passed  upon  it 
would  have  been  decided  adversely  to  the  views  here  exi)ressed. 

Lastly,  it  is  urged  that  there  will  be  great  practical  difficulty  in 
making  an  apportionment  of  property  for  the  purposes  of  valuation  and 
taxation  upon  the  lines  suggested,  and  the  learned  counsel' for  the  re- 
spondent has  suggested  many  difficulties  and  absurdities  claimed  to  be 
incidental  to  such  course  of  procedure.  Most  of  them  certainly  will 
not  arise  in  this  case  and  they  probably  never  will  in  any  other.  Of 
course  an  appraisal  based  upon  an  apportionment  of  the  entire  prop- 
erty of  the  consolidated  company  between  the  New  York  and  Massachu- 
setts corporations  may  be  made  a  source  of  much  labor  and  expense  if 
the  parties  so  desire.  Possibly  it  might  be  carried  to  the  extent  of  a  de- 
tailed inventory  and  valuation  of  innumerable  pieces  of  property.  Upon 
the  other  hand,  an  apportionment  based  upon  trackage  or  figures  drawn 
from  the  books  or  J)alance  sheets  of  the  company  may  doubtless  be 
easily  reached  which  will  be  substantially  correct,  and  any  inaccuracies 
of  which  when  reflected  in  a  tax  of  one  per  cent  upon  426  shares  of 
stock  will  be  inconsequential. 

The  order  of  the  Ai)pellate  Division  and  of  the  Surrogate's  Court  of 
the  comity  of  New  York  should  be  reversed,  with  costs,  and  the  pro- 
ceedings remitted  to  said  Surrogate's  Court  for  a  reappraisal  of  the 
stock  in  question  in  accordance  with  the  views  herein  expressed. 

CuLLEX,  Ch.  J.,  Gray,  O'Brien,  and  Edward  T.  Bartlett,  J  J., 
concur ;  Werner  and  Chase,  JJ.,  dissent. 

Order  reversed,  etc. 


CHAP.    IV.]  TllOUNE    V.    STATE.  307 


THORNE  V.  STATE. 
Supreme  C()[-irr  of  .M i x x ksota.     1920. 

[Reported  145  Minn.  412.] 

IIOLT,  J.  The  court  below  deteriiiined  that  certain  share  certifi- 
cates held  by  Saiiiuel  Thorne,  at  his  death,  were  subject  to  an 
iidierilance  or  succession  tax  to  the  extent  of  72.37  per  cent  of 
their  taxable  value.  The  executors  of  his  estate  appeal  from  the 
judgment,  contending  that  no  part  or  proportion  of  the  shares  is 
subject  to  the  tax,  while  the  state  also  appeals,  claiming  that  no 
deduction  from  the  full  taxable  value  should  have  been  made. 

The  findings  of  fact  were  nuule  upon  the  stipulations  and  admis- 
sions of  the  parties.  The  substance  of  those  deemed  material  to 
the  appeal  may  be  thus  stated : 

Samuel  Thorne,  a  resident  of  New  York  City,  died  there  July  4, 
1915,  testate.  The  will  was  probated  in  Xew  York  and  the  appel- 
lants, all  residents  of  that  state,  were  duly  appointed  executors.  At 
the  time  of  death,  Thorne  owned  13,606  shares  of  "Great  Northern 
Iron  Ore  Properties  Trustees'  Certificate  of  Beneficial  Interest," 
hereinafter  called  beneficial  certificates  for  short.  They  had  been 
in  his  possession  in  New  York  since  their  issuance  to  him  and 
were  worth,  on  the  stock  market,  $35.63  a  share,  at  the  time  of  his 
death.     Their  origin,  in  bi-ief,  was  this: 

The  Great  Northern  liailway  Company,  a  Minnesota  corporation, 
had  acquired  many  thousand  acres  of  iron  bearing  ore  in  this  state, 
together  with  other  property  not  a  part  of  its  transportation  business. 
Some  eight  subsidiary  Minnesota  corporations  had  been  organized  to 
operate  mines  and  handling  facilities  upon  and  in  connection  with 
these  mineral  lands,  and  to  deal  in  mines,  mining  leases  and  transact 
other  business.  There  were  also  two  foreign  companies  or  corpora- 
tions, formed  to  hold  and  operate  simihir  properties  and  business 
in  this  state.  All  of  the  property  held  by  the  mining  companies, 
apparently,  belonged  to  the  Great  Northern  Railway  Comj)any. 
The  latter,  realizing  that  mining  and  other  industrial  and  com- 
mercial business,  not  directly  connected  with  that  of  a  common 
carrier,  should  be  placed  in  other  hands  than  its  own,  contrived  the 
trust  in  which  these  beneficial  certificates  were  issued.  James  J. 
Hill,  tile  president  of  the  railway  company  and  its  moving  spirit, 
his  son  James  N.  Hill,  and  Robert  I.  Farrington  had  formed  a 
partnership  under  the  laws  of  Michigan  to  deal  in  mineral  lands 
in  Michigan,  Wisconsin  and  Minnesota,  and  to  take  and  hold  bonds 
and  stocks  of  all  sorts.  The  luime  assumed  was  the  Lake  Superior 
Company,  Limited.  It  was  evidently  designed  to  be  a  holding  com- 
pany, it  held  all  the  shares  of  stock  of  the  various  mining  com- 
panies above  referred  to  for  the  benefit  of  the  shareholders  of  the 


308  THORNE   V.   STATE.  [cilAP.   IV. 

railway  company,  when  in  lOOG,  by  resolution  of  the  board  of 
directors  of  the  railway  compan}-,  this  trust  agreement  was  au- 
thorized, and,  pursuant  thereto,  the  Lake  Superior  Company  trans- 
ferred to  Louis  W.  Hill,  James  N.  Hill,  AValter  J.  Hill  and  Edward 
T.  Nichols  all  of  said  shares  in  said  mining  companies  in  trust 
during  the  life  of  certain  children  named  and  for  20  years  after 
the  death  of  the  last  survivor.  The  trustees  were  to  issue,  and  did 
issue,  to  each  stockholder  of  the  railway  company  as  many  shares 
of  these  beneficial  certificates  as  he  held  of  Great  Northern  railway 
shares.  The  trustees  were  to  use  and  exercise  their  powers  as  the 
sole  shareholders  of  the  several  mining  companies  and  preserve 
their  existence;  collect  the  dividends  on  the  shares,  or  income  to 
accrue  in  virtue  thereof ;  pay  taxes  and  expenses  of  the  trust  without 
recourse  to  the  beneficial  certificate  holders;  after  paying  these  ex- 
penses they,  from  time  to  time  and  at  least  once  in  every  year,  were 
to  distribute  and  pay  such  portion  of  the  net  income  or  proceeds 
of  the  property  as  they  might  deem  proper  to  the  beneficial  certifi- 
cate holders ;  they  were  given  full  power  to  sell  or  exchange  the 
shares  of  stock  transferred  to  them  by  the  Lake  Superior  Company, 
and  the  interest  of  each  and  every  beneficiary  under  the  trust  con- 
tinues to  be  limited  to  the  right  to  receive  his  proportional  share 
of  dividends  in  such  distribution  as  shall  from  time  to  time  have 
been  determined  by  the  trustees.  The  trustees,  as  such,  in  no  way 
participate  in  the  management  of  the  mining  companies,  but  all 
the  said  trustees,  as  individuals,  together  with  other  persons  elected 
by  them  by  exercise  of  their  stock  vote,  are  the  officers  and  directors 
of  all  the  mining  companies,  except  that  James  IST.  Hill,  residing 
in  New  York,  has  not  been  an  officer  of  any  mining  company  and 
Nichols,  the  other  trustee  also  residing  in  New  York,  has  never  been 
an  officer  in  the  Leonard  Mining  Company.  A  more  complete  out- 
line of  the  trust  may  be  had  from  the  opinion  in  Yenner  v.  Great 
Northern  Ry.  Co.  117  Minn.  447,  136  N.  W.  271. 

The  trust  agreement  was  executed  and  delivered  in  New  York,  but 
the  shares  of  stock  thereby  transferred  were  delivered  to  the  trustees 
at  St.  Paul,  Minnesota,  where  they  have  ever  since  been  kept.  The 
president  of  the  trustees  had  always  lived  in  the  city  of  St.  Paul, 
as  did  also  one  other  trustee,  during  the  life  of  Mr.  Thorne,  Two 
of  the  trustees  have  resided  in  New  York,  where  also  is  maintained 
an  office  for  the  transfer  and  registering  of  the  beneficial  certificate 
shares,  and  distributing  the  dividends  thereon.  The  funds  of  the 
trust  are  kept  both  in  Minnesota  and  New  York  depositaries.  The 
meetings  of  the  trustees  have  been  few  in  number,  and  have  gen- 
erally been  held  in  the  city  of  New  York.  The  trustees  first  adopted 
by-laws  or  rules  in  January,  1913;  these  provide  for  monthly  meet- 
ings at  the  office  of  the  president  in  St.  Paul.  The  secretary  of  the 
trustees  and  his  office  force  and  records  have  always  been  in  St.  Paul ; 
this  secretary  and  office  force  have  also  handled  the  business  of  the 
mining  companies.  All  dividends  and  other  income  from  the  min- 
ing companies  are  paid  to  the  trustees  at  St.  Paul,  but  the  dividend 
checks  to  the  registered  beneficial  certificate  holders  are  issued  and 


I 


CHAP.    IV.]  T11UJ;-NK    C.    STATE.  300 

mailed  from  the  Xew  York  office.  When  Mr.  Thome  died  the 
trustees  had  $],li;:5,!)G8.()!i  of  trust  funds  on  deposit  in  Xew  York 
banks  and  $;<J,G88,S69.;}1  in  Minnesota  banks,  but  tiiere  were  no 
funds  in  the  hands  of  the  trustees  that  they  had  determined  to 
distribute  as  dividends.  Over  ten  million  dollars  have  been  dis- 
tributed to  the  benelioial  certificate  holders  since  the  formation  of 
the  trust.  The  attorney  general  has  heretofore  ruled  that  the 
beneficial  certificates  of  this  trust  were  not  subject  to  a  succession 
tax. 

The  first  contention  of  the  executors  is  that  the  state  is  foreclosed 
from  claiming  this  tax  by  reason  of  the  attorney  general's  practical 
construction  given  the  taxing  statute.  Numerous  cases  are  cited  as 
to  the  binding  force  given  by  courts  to  the  construction  consistently 
given  for  a  considerable  period  of  time  to  a  statute  by  officials  con- 
nected with  its  enforcement  or  required  to  discharge  executive  or 
administrative  duties  thereunder.  State  r.  Moffett,  64  Minn.  292, 
or  X.  W.  Q8;  State  v.  Northern  Pac.  Ey.  Co.  95  Minn.  43,  1U3  N.  W. 
731;  Musgrove  v.  Baltimore  &  Ohio  E.  Co.  Ill  Md.  629,  75  Atl. 
245;  Tvler  v.  Treasurer,  226  Mass.  306,  115  X.  E.  300,  L.E.A. 
191TD,^633;  In  re  Week's  Estate,  169  Wis.  316,  172  N.  W.  732. 
We,  however,  note  that  the  question  here  is  not  strictly  one  of  con- 
struing the  inheritance  tax  statute,  but  rather  an  ascertainment  of 
facts  to  determine  whether  or  not  the  beneficial  certificates  in  this 
trust  represent  property  rights  within  the  jurisdiction  of  this  state 
so  that  a  succession  tax  may  be  exacted.  The  deliberate  omission  of 
the  taxing  authorities,  up  to  the  present  time,  to  assert  the  right 
to  impose  sucli  a  tax  on  securities  of  this  sort,  though  entitled  to 
weight,  ought  not  to  be  conclusive  on  the  courts.  To  what  extent 
former  officials  have  known  the  facts  going  to  fix  the  situs  of  tliis 
property  is  not  disclosed.  The  statute  that  "  when  a  transfer  is 
by  will  or  intestate  law,  of  property  within  the  state  or  within  its 
jurisdiction  and  the  decedent  was  a  nonresident  of  the  state  at  the 
time  of  his  deatli,"  the  tax  shall  be  imposed  (section  2271,  G.  S. 
1913),  is  so  plain  that  it  is  not  open  to  construction. 

The  able  counsel  for  the  executors  have  exhaustively  considered 
the  legal  status  of  the  holders  of  the  beneficial  certificates  to  the 
trust  property  and  to  the  trustees  under  the  instrument  creating 
the  trust.  The  origin  of  trusts  was  no  doubt  for  the  protection  of 
the  beneficiary  so  as  to  assure  to  him  the  income  from  the  corpus 
of  the  trust  and  closing  every  avenue  by  which  he,  or  otliers,  might 
acquire,  dispose  of,  impair  or  encumber  the  property  itself.  And 
the  courts  when  dealing  with  trusts  have,  of  course,  adopted  and 
applied  principles  of  law  which,  as  between  the  beneficiary,  his 
creditors  and  his  trustees,  conserve  the  trust  estate  and  attain  the 
purposes  of  the  trust.  But  it  may  be  doubted  whether  the  legal 
principle?  formulated  and  applied  by  courts  in  such  matters  sho\ild 
guide  as  rigidly  when  it  comes  to  a  contest  by  the  state  to  impose 
a  succession  tax  upon  the  decedent's  beneficiary  interest  in  a  trust. 
However  that  may  be,  we  think  the  determinative  question  here  is 


310  TUOKNE   V.   STATE.  [ciIAP.   IV. 

the  situs  of  the  trust,  rather  than  the  legal  nature  of  the  interest  the 
holder  of  the  beneliciai  certificates  has  or  may  assert  to  the  trust 
property.  It  may  not  be  doubted  that  the  sliares  held  by  Mr. 
Thorne  represent  property.  They  have  participated  in  princely 
earnings,  and  entitle  the  holder  ultimately  to  share  in  the  vast 
properties  represented  by  the  shares  of  the  mining  companies  con- 
stituting the  corpus  of  the  trust.  Xo  matter  how  contingent  or 
uncertain,  from  a  legal  viewpoint,  the  interest  represented  by  these 
beneficial  certificates  of  Mr.  Thorne  might  be,  they  possessed  a 
very  substantial  value  on  the  stock  market.  A  trust  dealing  with 
vast  fortunes  must  have  a  home  where  its  business  is  administered. 

The  outstanding  facts  whicli  seem  to  us  to  fix  the  domicile  of 
this  trust  in  this  state  are  these:  The  shares  of  the  mining  com- 
panies, the  corpus  of  the  trust,  have  always  remained  here  since 
the  transfer  to  the  trustees;  the  president  and  secretary  of  the  trus- 
tees have  always  resided  here;  this  secretary  and  his  office  force 
have  not  only  had  here  charge  of  the  trust  estate,  its  records  and 
business,  but  such  persons  have  also  constituted  the  secretary  and 
office  force  of  the  mining  companies ;  the  income  from  the  trust 
property,  that  is,  from  the  shares  in  the  mining  companies,  has  al- 
ways been  accounted  for  and  turned  over  to  the  trustees  in  this 
state,  and  the  trust  was  planned  and  authorized  by  the  Great  North- 
ern Eailway  Company,  a  domestic  corporation,  and  represents 
property  mostly  situate  in  this  state  and  which  belonged  to  the 
railway  company  when  the  trust  agreement  was  made.  The  Great 
Northern  Eailway  Company  was  the  real  settlor  of  the  trust.  We 
hold  that  the  trust  to  which  these  beneficial  certificates  pertain  is 
within  the  jurisdiction  of  the  state  and  has  a  situs  and  location 
therein. 

The  only  other  state  that  could  possibly  claim  to  be  the  seat  of 
this  trust  would  be  New  York,  and  the  only  facts  pointing  to  that 
conclusion  would  be  the  execution  of  the  trust  agreement  there, 
the  maintenance  in  New  York  City  of  transfer,  registering  and 
dividend  disbursing  offices,  the  keeping  of  funds  on  deposit  in  New 
York  banks,  the  residence  there  of  two  trustees,  and  meetings  of  the 
trustees  held  in  that  state.  But  it  is  readily  appreciated  that  the 
maintenance  of  the  offices  mentioned  in  New  York  City  is  to  facili- 
tate dealings  on  the  stock  market  in  these  certificates  and  other 
financial  transactions,  the  same  as  like  offices  are  there  maintained 
in  the  same  building  by  the  Great  Nortliern  Eailway  Company.  And 
no  doubt  convenience  dictated  the  meetings  in  New  York  City  by 
the  trustees,  and  the  execution  there  of  the  trust  agreement,  the 
trustees  here  residing,  actively  engaged  as  officers  of  the  railway 
company  and  the  mining  companies,  would  naturally  find  frequent 
visits  to  New  York,  the  financial  center,  necessary,  while  business 
journeys  to  the  west  by  the  New  York  trustees  would  likely  be  rare. 
We  entertain  no  doubt  that,  at  any  time  while  an  owner,  Mr. 
Thorne  could  have  come  into  the  courts  of  this  state  for  any  relief 
he  might  have  shown  himself  entitled  to  in  respect  to  his  interest 
in  this  trust.    The  case  of  Venner  v.  Great  Northern  Ry.  Co.  supra, 


CTIAP.    IV.]  STATE     V.    IXELIXG.  311 

wuri  disposed  of  on  the  facts  admitted  hy  the  demurrer  to  the  com- 
plaint, and  is  not  to  be  construed  as  holding,  as  a  matter  of  law 
that  the  certificate  holders  cannot  com])el  by  ajjpropriate  suit  a 
distribution  of  accumulated  earnings.  Had  there  been  but  one 
trustee,  either  a  person  domiciled  in  this  state  or  a  domestic  cor- 
poration such  as  a  trust  company,  with  the  corpus  of  tlie  trust  held 
and  managed  as  here  was  done,  no  question  could  well  have  been 
raised  as  to  the  right  to  impose  the  tax,  even  though  the  trust  agree- 
ment were  executed  in  New  York,  and  even  though  a  transfer  and 
dividend  paying  olhce  were  there  kept,  and  even  if  it  were  doubtful 
by  the  law  of  which  state  the  validity  of  the  trust  agreement  should 
be  determined. 

The  jjroj)ositi(>n  that  a  trust  has  a  situs  so  as  to  afford  a  basis  for 
claiming  an  inheritance  tax  is  not  entirely  novel,  although  courts  in 
determining  tlie  location  may  not  always  stress  the  same  factors. 
Varied  importance  is  given  to  the  residence  of  the  trustees,  the  resi- 
dence of  the  settlor,  the  place  of  the  administration  of  the  trust,  and 
the  location  of  the  trust  property.  Professor  J.  H.  Beale,  in  an 
article  in  the  Harvard  Law  Keview  for  April,  1919  [Vol.  32, 
j)age  G-'H  |,  arrives  at  the  conclusion  that  a  succession  tax  is  payable 
at  the  place  of  the  administration  or  seat  of  the  trust.  The  cases 
cited  by  him  may  not  be  directly  in  point,  but  have  some  bearing. 
In  re  Cigala's  Settlement  Trusts,  7  Ch.  Div.  351;  In  re  Douglas 
Co.  V.  Kountze,  8-i  Neb.  50(5,  121  X.  W.  593.  See  also  Peabody  v. 
Treasurer,  215  :\rass.  129,  102  N.  E.  435. 

Having  reached  the  conclusion  that  the  trust  to  which  these  bene- 
ficial certificates  attach  has  a  location  or  situs  within  this  state  so  as 
to  give  jurisdiction  to  exact  a  succession  tax  when  the  holder  of  the 
trust  certificates  dies,  it  follows  that  no  reduction  should  be  made 
because  some  of  the  shares  constituting  the  corpus  of  the  trust  are 
shares  of  stock  in  foreign  corporations.  The  trustees  of  a  trust, 
having  a  domicile  within  the  state  where  the  principal  part  of  the 
administration  of  the  trust  is  conducted  and  the  corpus  of  the  trust 
is  kept  and  controlled,  should  be  regarded  for  succession  tax  purposes 
as  if  constituting  a  domestic  concern  or  corporation. 

On  the  state's  appeal  the  judgment  is  reversed  and  the  case  is  re- 
manded with  direction  to  amend  the  conclusion  of  law  in  the  find- 
ings and  enter  judgment  in  accordance  with  this  opinion. 


STATE  V.  EBELING. 
Supreme   Court  of  Wiscoxsix.     1919. 

[Reported  169  Wis.  432.] 

The  county  court  of  Brown  Count]/,  in  determining  the  amount 
upon  which  inheritance  taxes  imposed  upon  the  estate  of  John  H. 
Ebeling,  deceased,  should  be  computed,  deducted  the  amount  of  the 


312  STATE   v.   EBELING.  [cHAP.   IV. 

federal  estate  tax  imposed  upon  the  estate,  and  determined  that  cer- 
tain gifts  made  by  decedent  within  six  years  prior  to  his  death  were 
not  subject  to  an  inheritance  tax.  The  state  and  county  appealed 
from  the  judgment  to  the  circuit  court  for  Broivn  County,  where 
the  judgment  of  the  county  court  was  affirmed.  From  such  judg- 
ment the  state  and  county  appealed. 

The  estate  was  valued  at  $33'3,8iy.33;  $12,779.37,  the  amount  of 
the  federal  estate  tax,  Avas  deducted  from  this  amount  in  determin- 
ing the  amount  upon  which  the  inheritance  tax  should  be  computed. 
The  deceased  died  January  15,  1918.  He  had  three  children.  Within 
six  vears  prior  to  his  death  he  made  gifts  to  them  as  follows :  De- 
cember 23,  1912,  $1,000  to  each;  November  22,  1912,  $1,000  to 
each;  October  31,  1!)13,  $500  to  each;  December,  1913,  $200  to 
each;  May,  1916,  $500  to  each;  June  30,  1917,  $10,000  to  each 
August  18,  1917,  $5,318.33  to  each;  and  October  1,  1917,  $10,000 
to  each. 

The  court  found  that  neither  of  said  gifts  nor  all  of  them  com- 
bined constitute  a  material  part  of  the  estate  of  said  testator;  that 
neither  of  said  gifts  nor  all  of  them  together  was  or  were  made  in 
the  nature  of  a  final  disposition  or  distribution  of  said  testator's 
estate;  that  no  one  of  said  gifts  was  made  by  said  testator  in  con- 
templation of  death ;  and  further,  that  if  the  law  raised  any  pre- 
sumption as  to  any  of  such  gifts  that  they  were  made  in  contemplation 
of  death,  said  presumption  is  fully  overcome  by  the  evidence  in  the 
case. 

Owen,  J.  It  was  held  in  Estate  of  Week,  169  Wis.  316,  172.  N.  W. 
732,  that  the  federal  estate  tax  is  not  a  proper  deduction  in  determin- 
ing the  amount  upon  which  the ,  state  inheritance  tax  should  be 
computed.     The  county  court  erroneously  allowed  this  deduction. 

Prior  to  the  enactment  of  ch.  613,  Laws  1913,  sec.  1087  —  1, 
Stats.,  imposed  a  tax  upon  three  classes  of  transfers  of  property: 
(1)  1)y  will;  (2)  by  intestate  laws;  and  (3)  by  gifts  made  in  con- 
templation of  death  of  the  donor  or  intended  to  take  effect  in  posses- 
sion or  enjoyment  at  or  after  such  death.  Ch.  643,  Laws  1913, 
amended  this  section  by  adding  at  the  end  of  sub.  (3)  the  following: 

"  Every  transfer  by  deed,  grant,  bargain,  sale  or  gift,  made  within 
six  years  prior  to  the  death  of  the  grantor,  vendor  or  donor,  of  a 
material  part  of  his  estate,  or  in  the  nature  of  a  final  disposition  or 
distribution  thereof,  and  without  an  adequate  valuable  consideration, 
shall  be  construed  to  have  been  made  in  contemplation  of  death 
within  tlie  meaning  of  this  section." 

The  state  contends  that  the  amendment  makes  every  gift  of  a 
material  part  of  the  estate  of  a  deceased  person,  when  made  within 
six  years  prior  to  death,  subject  to  an  inheritance  tax.  It  is  the 
contention  of  the  respondents  that  the  amendment  does  not  have 
such  conclusive  effect,  and  that  it  accomplishes  no  more  than  to 
make  the  gift,  when  made  within  six  years  prior  to  death,  prima 
facie  evidence  of  the  fact  that  it  was  made  in  contemplation  of 
death,  thereby  shifting  the  burden  of  proof  upon  that  question. 

In  the  case  of  State  v.  Thompson,  154  Wis.  320,  142  N.  W.  647, 


CHAP. 


IV.]  STATE     V.    ERELIXfi.  313 


this  court  had  under  consideration  the  question  of  inheritance  taxes 
due  from  the  estate  of  one  Joseph  Dessert,  who  died  at  the  age  of 
ninety-two.  i'ractically  his  entire  estate  was  devised  to  his  only 
daughter  and  sole  heir,  Stella  D.  Thompson.  She  took  hy  the  will 
ahout  $200,000.  During  the  last  six  years  of  his  life  he  gave  her 
approximately  a  half  million  dollars,  mainly  in  two  gifts,  one  made 
three  years  and  the  other  four  and  one-half  years  prior  to  his  death. 
This  court  held  that  the  gifts  were  not  suhject  to  inheritance  taxes. 
The  circumstances  of  that  case  forcihly  hrought  to  the  attention  of 
the  legislature  the  fact  that  after  a  person  had  attained  the  age  of 
eighty-nine  years,  an  age  when  he  coulil  not  expect  to  live  many 
more  years,  when  his  thoughts,  naturally,  were  consumed  rather 
with  the  disposition  of  property  already  accumulated  than  with 
the  accumulation  of  more,  he  could  bestow  his  property  upon  the 
objects  of  his  bounty  and  thus  evade  the  inheritance  tax.  This  de- 
cision was  rendered  ilay  31,  1913.  The  legislature  was  then  in 
session.  Ten  days  thereafter  Senate  hill  No.  575  was  introduced 
by  the  Joint  Committee  on  Finance.  This  bill,  without  amend- 
ment, was  approved  July  21st  and  became  ch.  6-43,  Laws  1913. 

Now  the  question  is  this:  Did  the  legislature  intend  to  make 
gifts  and  transfers  of  property,  made  within  six  years  prior  to 
death,  absolutely  taxable,  or  was  it  simply  providing  a  rule  of  evi- 
dence? There  can  be  little  doubt  that  the  legislation  was  prompted 
by  the  decision  in  the  Thompson  Case.  That  was  a  case  in  which  the 
state  was  a  party.  It  was  regarded  as  an  important  case,  not  only  be- 
cause of  the  amount  involved  but  as  a  precedent.  The  contention  of 
the  stiite  was  rejected  by  the  court.  It  seems  quite  reasonable  to  sup- 
pose that  the  legislature  in  enacting  the  amendment  intended  to  do 
what  it  could  in  the  way  of  moulding  into  law  the  doctrine  con- 
tended for  by  the  state  in  that  case.  If  it  intended  to  make  the 
gift  or  transfer  occurring  within  six  j-ears  prior  to  death  only  prima 
facie  evidence  of  the  fact  that  it  was  made  in  contemplation  of 
death,  the  legislative  response  was  certainly  weak  and  puerile.  In 
cases  where  the  facts  are  easily  ascertainable  the  burden  of  proof 
is  of  the  merest  advantage.  It  is  only  in  cases  where  the  proof  is 
ditficult  to  obtain,  such  as  violations  of  the  excise  laws,  where 
a  rule  of  law  constituting  certain  evidence  a  prima  facie  case  is  of 
real  advantage.  With  such  a  construction  the  amendment  would 
not  have  changed  the  result  of  the  Thompson  Case,  and  we  may 
well  believe  that  the  purpose  of  the  legislature  was  to  prevent  such 
a  recurrence. 

It  is  clear  to  our  minds  that  the  legislature  intended  to  define 
what  should  constitute  a  transfer  in  contem])lation  of  death.  It 
w\as  the  legislative  purpose  to  make  the  statute  effective.  It  realized 
that  if  a  person  after  reaching  the  age  of  eighty  or  ninety  years 
could  dispose  of  his  property  free  from  the  tax,  it  could  be  easily 
evaded  by  those  possessing  the  larger  fortunes.  So  it  was  enacted 
not  only  that  the  tax  should  apply  to  gifts  made  in  contemplation 
of  death  but  to  gifts  made  within  six  years  prior  to  death. 

It   is  said   that   the   legislature   cannot   declare   a   gift   to   be   in 


;n4  STATE  V.   KEELING.  [CHAP.   IV. 

contemplation  of  death  wlien  it  in  fact  is  not  so.  It  is  admitted, 
however,  that  the  legislature  may  tax  gifts  ititer  vivos.  Whether 
these  gifts,  therefore,  be  held  to  be  gifts  in  contemplation  of  death 
or  gifts  inter  vivos,  tliey  are  not  beyond  the  power  of  the  legislature 
to  tax.  If  they  be  considered  gifts  inter  vivos  there  is  abundant 
justification  for  the  classification  here  made  in  segregating  them 
from  other  gifts  inter  vivos  as  objects  of  taxation,  the  basis  for  such 
classification  being  the  purpose  to  make  the  law  taxing  gifts  made 
in  contemplation  of  death  effective.  It  is  recognized  that  in  en- 
acting a  police  regulation  it  may  be  found  necessary  to  include 
within  the  purview  of  the  statute  certain  acts  innocent  and  not  in 
themselves  a  subject  of  police  regulation  where  the  inclusion  of 
such  acts  is  necessary,  in  the  opinion  of  the  legislature,  to  make 
the  police  regulation  efrective,  Pennell  v.  State,  141  Wis.  35,  123 
X.  W.  115.  While  a  principle  relating  to  police  regulation  does 
not  necessarily  apply  to  the  power  of  taxation,  no  reason  is  per- 
ceived why  the  legislature  may  not,  as  here,  make  a  classification  of 
gifts  inter  vivos  and  subject  them  to  taxation  for  the  purpose  of 
making  effective  taxation  of  gifts  causa  mortis.  That  it  will  occa- 
sionally result  in  the  taxation  of  gifts  not  in  fact  made  in  contem- 
plation of  death,  which  may  be  conceded,  should  not  condemn  the 
classification  if  the  classification  be  reasonably  necessary  to  carry  out 
the  legislative  scheme  for  the  taxation  of  gifts  causa  mortis.  Nor 
should  it  be  condemned  because  there  is  no  material  distinction  be- 
tween those  w'ho  fall  immediately  upon  one  side  of  the  line  and  those 
who  fall  immediately  upon  the  other,  as  illustrated  by  the  fact  that  a 
gift  one  day  less  than  six  years  prior  to  death  is  taxable,  while  a  gift 
made  one  day  more  than  six  years  prior  to  death  is  not  taxable. 
That  is  always  the  case  where  the  classification  is  of  necessity  fixed 
by  an  arbitrary  line  of  demarcation.  As  said  in  State  v.  Evans, 
130  Wis.  381,  110  N.  W.  241: 

"  Neither  need  we  be  disturbed  by  the  fact  that  the  line  of  de- 
marcation between  the  classes  is  arbitrary.  Wherever  there  is 
a  sliding  scale  of  age,  population,  dimension,  distance,  or  other 
characteristic  which  is  believed  to  justify  classification,  necessarily 
the  division  between  classes  must  be  arbitrary,  and  legislation  is 
not  to  be  declared  void  which  adopts  the  age  of  twenty-one  as  mark- 
ing the  right  to  vote  or  manage  property  because  the  individual  at 
twenty  years  and  eleven  months  may  be  as  competent  as  at  twenty- 
one,  nor,  in  a  law  distinguishing  by  population,  because  no  appre- 
ciable difference  can  be  conceived,  between  the  town  of  999  and  the 
town  of  1,000,  provided,  generally,  the  class  of  those  under  twenty- 
one  years  of  age  are  less  competent  to  vote  or  manage  property 
than  the  class  of  mankind  above  that  age,  or  the  class  of  towns 
which  do  not  include  villages  of  1,000  population  are  generally 
less  in  need  of  the  governmental  powers  conferred  upon  villages 
than  the  class  of  towns  which  do  contain  villages  of  1,000  and 
upward. 

The  next  question  is  whether  these  gifts,  or  any  of  them,  con- 
stitute a  material  part  of  the  donor's  estate.     Obviously  the  law 


CHAP.    IV.]  MATTER     OF     FEAiaXG.  315 

would  be  easier  of  administration  if  it  were  more  definite  in  fixing 
the  character  or  size  of  gifts  to  be  deemed  to  have  been  made  in  con- 
teiiij>hiti(jn  of  death.  W'hctiier  tiiat  is  practicable  or  possible  we  do 
not  suggest.  The  use  of  the  word  "  material "  does  not  make  the 
law  impossible  of  administration.  Whether  a  gift  constitutes  a 
material  part  of  a  donor's  estate  is  left  a  judicial  question.  As  the 
legislature  has  not  attemj)ted  to  define  with  exactness  what  shall  be 
considered  a  material  part  of  an  estate,  neither  shall  we.  That 
question  must  be  left  to  be  determined  in  each  case  as  it  arises. 
In  this  case  the  estate  was  valued  at  about  $."330,000.  AVe  think- 
that  occasional  gifts  of  $500  or  $1,000  made  by  a  donor  possessing 
such  an  estate  should  not  be  deemed  a  material  part  thereof.  None 
of  the  gifts  made  prior  to  the  year  IDl?  exceeded  $1,000.  We  hold 
that  such  gifts  are  not  taxable.  We  hold  that  the  gifts  made  in  1917, 
of  $10,000  to  each  of  the  children  on  June  30th,  $5,318.33  to  each 
on  August  18th,  and  $10,000  to  each  on  October  1st,  amounting 
to  more  than  $75,000,  do  constitute  a  material  part  of  the  estate 
and  that  they  are  taxable. 

By  the  Court. — Judgment  reversed,  and  cause  remanded  with 
directions  to  reverse  the  judgment  of  the  county  court,  with  direc- 
tions to  disallow  the  deduction  made  for  the  amount  of  the  federal 
estate  tax  and  to  include  the  amount  of  the  gifts  indicated  in  the 
opinion  as  a  part  of  the  taxable  estate. 


MATTER  OF  FEAEING. 
Court  of   Appeals   of   Kew   Yoek.     1911. 

[Reported  200  .Y.  Y.  340.] 

Gray,  J.  The  Appellate  Division  has  affirmed  a  determination 
of  the  surrogate  of  New  York  county  that  "  bonds  and  other  property, 
located  outside  of  this  state"  at  the  date  of  the  death  of  Mrs. 
Sheldon,  a  non-resident  of  this  state,  and  transferred  by  her  will,  in 
the  exercise  of  a  power  of  appointment  contained  in  the  will  of 
Daniel  B.  Fearing,  were  not  subject  to  a  transfer  tax.  Upon  this 
appeal  by  the  comptroller  of  the  state,  it  is  argued,  in  the  first  place, 
that  the  tnist  property,  which  was  appointed  by  Mrs.  Sheldon's 
will,  "was  property  of  a  resident  decedent,  .  ,  .  and,  consequently, 
taxable  here,  wheresoever  situated."  In  the  second  place,  it  is  ar- 
gued that  bonds,  secured  by  mortgages  of  real  estate  situated  in  this 
state,  of  which  the  trust  estate  was  principally  composed,  "  al- 
though the  instruments  evidencing  them  are  outside  of  the  state, 
constitute  taxable  property." 

Daniel  B,  Fearing  died  in  1870,  a  resident  of  this  state,  leaving 
a  will ;  by  which  a  trust  was  created  for  the  life  of  his  daughter, 
Aniey  R.  Sheldon,  for  her  benefit.  She  was  given  the  power  to  ap- 
point by  will  the  persons,  to  whom  the  trustees  were  to  set  over  the 


316  MATTER   OF    FEARIXG.  [cHAP.    IV. 

remainder  of  the  trust  estate  upon  her  death,  in  the  event  of  her 
d3'ing  without  issue.  At  the  time  of  lier  death  Mrs,  Sheldon  was, 
and  had  been  for  many  years,  a  resident  of  the  State  of  Khode 
Island,  and  her  will  was  there  admitted  to  probate.  She  left  no 
issue  and  her  exercise  of  the  power  of  appointment  conferred 
by  her  father's  will  was  in  accord  with  its  provisions.  The  surviv- 
ing trustee  of  Fearing's  will  was,  also,  a  resident  of  the  same  state 
The  trust  estate,  which  was  disposed  of  by  the  provisions  of  Mrs, 
Sheldon's  will,  wholly,  consisted  of  bonds,  secured  by  mortgages  of 
real  estate,  Tlie  mortgages  were,  mainly,  of  real  estate  within  this 
state,  but  none  of  them,  or  of  the  bonds,  was,  or  had  been,  kept  here. 
Mr.  Fearing  died  many  years  before  the  enactment  of  any  statute 
charging  the  succession  to  estates  of  deceased  persons  with  a  tax. 
After  such  an  enactment  was  placed  upon  the  statute  books,  it  was 
not  until  1897  that  propertv,  passing  through  the  execution  of  a 
power  of  appointment  created  by  will,  was  subjected  to  taxation 
when  the  will  had  become  operative  before  the  passage  of  the  Tax 
Law.  Chapter  284  of  the  Laws  of  1897  added  to  the  Transfer  Tax 
Law  the  following  provision :  "  "Whenever  any  person  or  corporation 
shall  exercise  a  power  of  appointment  derived  from  any  disposition 
of  property  made  either  before  or  after  the  passage  of  this  act,  such 
appointment  when  made  shall  be  deemed  a  transfer  taxable  under 
the  provisions  of  this  act  in  the  same  manner  as  though  the  property 
to  which  such  appointment  relates  belonged  absolutely  to  the  donee 
of  such  power  and  had  been  bequeathed  or  devised  by  such  donee 
by  will ;  and  whenever  any  person  or  corporation  possessing  such  a 
power  of  appointment  so  derived  shall  omit  or  fail  to  exercise  the 
same  within  the  time  provided  therefor  in  whole  or  in  part  a 
transfer  taxable  under  the  provisions  of  this  act  shall  be  deemed 
to  take  place  to  the  extent  of  such  omissions  or  failure,  in  the 
same  manner  as  though  the  persons  or  corporations  thereby  be- 
coming entitled  to  the  possession  or  enjoyment  of  the  property  to 
which  such  power  related  had  succeeded  thereto  by  a  will  of  the 
donee  of  the  power  failing  to  exercise  such  power,  taking  effect  at 
the  time  of  such  omission  or  failure."  (Section  220,  subd,  5.) 
No  language  could  more  clearly  disclose  the  legislative  intent  that 
property  thereafter  to  pass  by  the  exercise  of  a  power  of  appoint- 
ment should  be  taxed,  irrespective  of  the  time  when  the  instrument 
creating  the  power  was  executed.  Such  an  appointment  to  others 
was,  for  the  purposes  of  taxation,  to  be  deemed  the  equivalent  of  a 
bequest,  or  devise,  by  the  donee  of  the  power  of  property  belonging 
to  the  donee.  Prior  to  this  amendment  of  the  Transfer  Tax  Law, 
there  was  no  provision  for  the  taxation  of  transfers  under  powers 
of  appointment ;  but,  with  the  passage  of  the  amendment,  the  privi- 
lege of  exercising  the  power  by  will  was  subjected  to  the  charge  of 
a  tax  upon  the  right  of  the  appointees  to  take.  Whereas,  previously, 
the  source  of  the  appointee's  right  of  succession  was  deemed  to  be 
in  the  will  creating  the  power  of  appointment ;  tliereafter,  it  was 
to  be  deemed  to  be  in  the  execution  of  the  power  itself.  The  actual 
transfer  effected  by  the  exercise  of  the  power  was  to  be  taxed.     The 


CHAP.  IV.]  MATTER  OF  FEARIXO.  317 

legislature,  in  the  exercise  of  its  control  over  testamentary  disposi- 
tions of  property,  could  validly  burden  such  transfers  with  a  tax, 
regardless  of  the  teclmical  sources  of  the  title  of  the  appointee  under 
the  rules  of  the  common  law.  (See  Matter  of  Dows,  IGT  N.  Y.  2'iT ; 
Matter  of  Delano,  17G  ib.  48G.)  As  Mrs.  Sheldon,  in  making  a 
will,  exercised  a  privilege  granted  by  the  laws  of  her  own  state,  and 
not  by  those  of  this  state,  the  transfers  of  property  effected  thereby 
were  beyond  the  reach  of  our  tax  laws.  The  state  had  no  dominion 
over  the  property  transferred. 

The  second  proposition  urged  by  the  comptroller  presents  no  new 
question.  It  is  covered  by  our  decision  in  ]\latter  of  Bronson,  (loO 
N.  Y.  1).  The  contention  that,  as  the  mortgages,  which  were  given 
to  secure  the  payment  of  the  bonds  transferied  by  Mrs.  Sheldon's 
will,  were  of  real  estate  in  this  state,  the  bonds  represented  invest- 
ments taxable  here,  was  disposed  of  by  that  case.  The  provision  of 
the  Transfer  Tax  Law,  which  was  then  under  consideration,  was 
that  "  a  tax  shall  be  and  is  hereby  imposed  upon  the  transfer  of 
any  property  .  .  .  when  the  transfer  is  by  will,  or  intestate  law, 
of  property  ivithin  the  state,  and  the  decedent  was  a  non-resident 
of  the  state  at  the  time  of  his  death."  (L.  1892,  ch.  399,  sec.  1.) 
This  provision  of  the  law  has  not  been  changed  since  its  enactment 
in  1892.  In  the  Bronson  case,  the  testator  was  a  resident  of  the 
state  of  Connecticut  and  a  part  of  the  residuary  estate  disposed  of 
by  his  will  consisted  in  shares  of  the  capital  stock,  and  in  the  bonds, 
of  corporations  incorporated  under  the  laws  of  this  state;  all  of 
which  were  in  the  testator's  possession  at  his  domicile.  We  held 
the  shares  of  stock  to  be  taxable,  as  representing  distinct  interests 
of  the  holder  in  the  corporate  property;  but  the  bonds  were  held 
not  to  be  subject  to  any  tax.  It  was  considered  that  they  did  not 
represent  "  property  within  the  state  "  and,  therefore,  were  not  prop- 
erty over  which  this  state  had  any  jurisdiction  for  the  purposes  of 
taxation.  The  reasoning,  upon  which  this  conclusion  was  reached, 
is  as  effective  in  the  present  case.  Whether  the  bonds  are  secured, 
as  in  the  Bronson  case,  by  mortgages  of  corporate  property,  or,  as 
in  the  present  case,  by  mortgages  of  the  property  of  individuals, 
they  represent,  equally,  debts  of  their  makers,  which,  as  choses  in 
action,  under  the  general  rule  of  law,  are  inseparable  from  the  per- 
sonality of  the  owner.  Under  that  rule,  as  it  was  said  in  the  Foreign 
Held  Bonds  Case,  (15  Wall.  300,  320),  of  the  bonds  there,  they 
"can  have  no  locality  separate  from  the  parties  to  wdiom  they  are 
due,"  and  the  legal  situs  of  tlie  iiidel)tedness,  which  they  represent, 
is  fixed  by  the  domicile  of  the  creditor.  The  legal  title  to  these  bonds 
in  question  was  transferred  by  force  of  the  laws  of  Rhode  Island. 
As  their  legal  and  actual  situs  was  in  a  foreign  state,  upon  no  theory 
were  they  within  the  operation  of  our  Transfer  Tax  Law.  I  am  un- 
able to  perceive  the  force  of  any  argument,  which  seeks  to  find  in  the 
feature  of  the  mortgage  a  reason  for  limiting  the  rule  of  law  applied 
by  us  in  the  Bronson  case.  If  bonds  issued  by  domestic  corporations 
upon  the  security  of  mortgages  of  the  corporate  property  are  not 
subject  to  taxation,  when  in  the  hands  and  physical  possession  of 


318  MATTER    OF    CLINCH.  [cHAP.   IV. 

a  non-residont  (lecedent,  as  wo  have  decided  in  that  case,  then  the 
bonds  passing  inuler  Mrs.  Sheldon's  will  cannot  be  reached  for  taxa- 
tion. In  the  Whiting  case  (150  N.  Y.  27)  decided  at  the  same  time 
as  was  the  Bronson  Case,  it  was  expressly  stated  tliat  the  bonds  there 
in  question  were  subject  to  taxation  "on  account  of  their  physical 
presence  in  this  state."  There  is  no  sound  distinction  between 
this  case  and  the  Bronson  case,  which,  as  I  view  them,  commends 
itself  to  the  judgment. 

I,  therefore,  advise  that  we  should  affirm  the  order  appealed 
from. 

CuLLEX,  Ch.  J.,  Werner.  Willard  B.ujtlett  and  Chase,  JJ., 
concur ;  Vann,  J.,  dissents ;  Haight,  J.,  not  voting. 

Order  affirmed,  with  costs. 


MATTER  OF  CLINCH. 

CouKT  OF  Appeals  of  New  York.     1905, 

[Reported  180.  N.  Y.  300.] 

Haight,  C,  J.  The  tax  was  imposed  on  the  appellant  as  trustee 
under  the  will  of  Robert  T.  Clinch,  deceased,  upon  the  share  of  the 
residuary  estate  of  Charles  J.  Clinch,  the  father  of  said  Robert, 
which  was  paid  over  to  the  executor  of  Robert  sul)se(iuent  to  his 
decease.  Robert,  at  the  time  of  his  death,  was  a  non-resident  of 
this  state,  residing  in  Paris,  France.  At  that  time  his  father's 
estate  had  not  been  distributed.  Subsequently  distribution  was  had, 
and  the  executor  of  Robert  received  in  satisfaction  of  his  share  of 
his  father's  estate  specific  securities.  It  is  not  questioned  that  the 
transfer  from  Charles  to  Robert  was  subject  to  a  transfer  tax;  the 
controversy  here  relates  solely  to  the  transfer  under  Robert's  will 
to  his  legatees.  The  learned  counsel  for  the  appellant  contends 
that  at  the  time  of  Robert's  death  his  interest  in  his  father's  estate 
was  a  mere  chose  in  action,  the  situs  of  which  was  not  this  state, 
but  at  Robert's  domicile  in  France ;  that  hence  that  was  not  property 
within  the  state  and  subject  to  our  inheritance  laws,  and  that  the 
action  of  the  executor  subsequent  to  Robert's  death  in  receiving 
in  satisfaction  of  that  chose  in  action  specific  securities  held  in  this 
state  could  not  subject  the  property  to  our  inheritance  tax  if  it 
was  not  liable  to  the  imposition  of  such  a  tax  at  the  time  of  Robert's 
death.  We  may  concede  for  the  discussion  all  the  appellant  claims 
except  the  single  proposition  that  a  claim  due  a  non-resident  from 
a  resident  of  this  state  is  not  property  within  this  state  subject  to 
the  imposition  of  our  transfer  tax.  It  is  true  that  in  the  case  of 
Matter  of  Phipps  (77  Ilun,  325;  affirmed  on  opinion  below,  143 
N.  Y.  641)  Judge  Van  Brunt  said  that  the  right  to  a  legacy  given 
by  the  will  of  a  resident  of  this  state  to  a  non-resident  could  not 
be  considered  property  located  within  this  state.  Subsequently 
there   was    decided   by   this   court   four   cases,   Matter   of   Bronson, 


CHAP. 


IV.]  MATTER    OF    CLINCH.  31^ 


Matter  of  Whitinf]^,  Matter  of  Mor^^an,  and  Matter  of  Houdayer 
(150  N.  Y.  1 ;  1(1.  2?;  Id.  35;  Id.  37),  all  arisiri-,^  under  the  Trans- 
fer Tax  Law.  In  those  eases  it  was  held  that  bonds  of  a  New  York 
corporation  held  l).v  a  non-resident  and  in  his  possession  at  the 
place  of  his  domicile  at  the  time  of  his  death  were  not  subject  to 
the  tax,  hut  that  deposits  in  bank  in  this  state  were  so  subject.  In 
the  Iloudaycr  case  Judge  Vann  placed  the  liability  of  deposits  in 
bank  to  taxation  on  the  broad  ground  that  it  was  through  the  law.s 
and  courts  of  this  state  that  their  repayment  couhl  be  enforced. 
The  majority  who  concurred  in  tliat  deci.sion  did  not  deem  it  nec- 
essary to  go  so  far,  but  were  of  opinion  that  a  deposit  in  bank  was 
practically  the  same  as  actual  money.  In  Matter  of  Blackstone 
(171  X.  Y.  ()8"3)  we  followed  the  decision  in  the  Jloudayer  ca.se  and 
again  taxed  the  deposit  of  a  non-resident  in  a  New  York  trust 
com})any.  That  case  was  appealed  to  the  Supreme  Court  of  the 
United  States  and  our  decision  affirmed.  (Blackstone  v.  Miller, 
188  U.  S.  18i).)  The  Supreme  Court  took  the  same  broad  ground 
held  by  Judge  Vann  in  this  court.  It  said  that  the  doctrine  that 
the  situs  of  personal  property  was  the  domicile  of  the  owner  was 
merely  a  fiction  which  must  yield  to  facts;  that  it  was  the  law  of 
the  place  where  the  debtor  resided  which  gave  the  debt  validity 
and  forced  the  debtor  to  pay,  and  that  it  was  within  the  constitu- 
tional power  of  the  state  where  the  debtor  resided  to  tax  the  obliga- 
tion from  him  to  a  non-resident  excepting,  however,  the  case  of 
bonds  and  negotiable  instruments  which  are  considered  to  be  not 
merely  evidence  of  the  debt  but  inseparable  from  the  debt  itself. 
This  decision  was  but  the  logical  result  of  an  earlier  determination 
by  the  court  in  Chicago,  Rock  Island  &  P.  R.  Co.  r.  Sturm  (174 
U.  S.  710)  where  it  was  held  that  a  debt  due  from  a  resident  to  a 
non-resident  could  be  seized  by  a  creditor  of  the  latter  in  the  dom- 
icile of  the  debtor.  Under  the  doctrine  of  the  Blackstone  case  the 
interest  of  Robert  Clinch  in  his  father's  estate  was  subject  to  the 
inheritance  tax  imposed  by  the  laws  of  this  state. 

The  order  of  the  Appellate  Division  should  be  affirmed  with  costs. 

Bahtlktt,  J.     I  vote  for  affirmance  and  the  opinion. 

This  court  held  in  Matter  of  Zefita,  Countess  De  Rohan-Chabot 
(167  N.  Y.  280),  that  the  transfer  tax  could  not  be  imposed  on  a 
legacy  of  a  residuary  estate  until  the  amount  of  that  estate  is  as- 
certained.   The  parties  in  interest  in  that  case  were  all  non-residents. 

In  the  case  at  bar  the  transfer  tax  was  imposed  after  the  amount 
of  the  residuary  estate  had  been  ascertained,  and  clearly  falls  within 
the  law  as  laid  down  in  the  case  cited.  In  the  case  before  us  the 
parties  are  also  non-residents. 

The  nature  of  the  interest  of  a  residuary  letjatee  prior  to  a  final 
accounting  of  the  executor  was  considered  in  Matter  of  Phipps  (77 
Hun,  325;  affirmed  on  opinion  below,  143  N.  Y.  641). 

CuLLEN,  Ch.  J.,  Gray,  O'Brien,  Vann  and  Werner,  JJ.,  concur 
with  opinion  and  memorandum. 

Order  affirmed^ 


320  VAjS'UXEM's  estate.  [chap.  IV. 


VANUXEM'S  ESTATE. 
Supkem;e  Court  of  Pennsylvania.     1905. 

[Reported  212  Pa.  315.] 

Potter,  J.  Louis  C.  Yanuxem,  Esq.,  of  Springfield  township, 
Montgomer}^  county,  made  his  last  will  and  testament  dated  October 
16,  1903.  By  item  seven  of  his  will  he  gives  his  executors  full 
power  and  discretion  to  sell  any  or  all  of  his  real  estate,  whenever 
any  such  sale  be  necessar}^  or  expedient  for  any  purpose  of  his  estate, 
administration,  distribution  or  otherwise.  He  was  seized  of  certain 
real  estate  in  Tennessee  and  Illinois,  and  upon  this  property,  the 
appraiser  of  collateral  inheritance  tax  assessed  taxes.  This  was 
done  upon  the  ground  that  the  directions  in  the  will  worked  an 
equitable  conversion  of  the  lands  into  personal  property,  by  authoriz- 
ing the  executors  in  their  discretion  to  sell  for  distribution,  and 
the  further  fact  that  it  became  necessary  to  sell  in  order  to  pay  the 
pecuniary  legatees. 

The  orphans'  court  sustained  the  action  of  the  appraiser.  It 
was  not  pretended  that  the  real  estate  in  other  states  could  be  charged 
with  collateral  inheritance  tax  as  real  estate,  but  only  by  reason 
of  the  fact  that  it  was  necessary  for  the  executors  to  sell  it,  in  order 
to  provide  the  money  to  pay  the  pecuniary  legacies.  And  that  being 
the  case,  the  power  to  sell  if  necessary  to  make  distribution,  became 
undeu  the  manifest  intent  of  the  testator,  a  direction  to  sell. 

The  judge  of  the  orphans'  court  thus  reasons  it  out  in  his  opinion : 
"  The  pecuniary  legacies  are  to  be  paid  before  those  to  whom  the 
residuary  is  given  shall  receive  anything,  because  it  is  only  what 
remains  of  the  estate,  after  the  specific  legacies  are  paid,  that  passes 
as  residue  or  remainder.  These  legacies  pass  to  the  legatees  as 
money.  The  testator  intended  them  to  be  paid  in  cash.  There  is 
nothing  in  the  language  of  the  will  to  show  they  are  to  be  paid  in 
any  other  way.  Their  character  is  personalty.  He  must  have  - 
foreseen  the  necessity  for  the  sale  of  his  real  estate  to  carry  out', 
his  scheme  of  dividing  his  estate  by  first  bestowing  gifts  upon  the 
beneficiaries  in  the  form  of  pecuniary  legacies,  else  how  were  they 
to  be  paid?" 

The  pecuniary  legacies  aggregated  nearly  $700,000,  or  very  much 
more  than  the  amount  of  the  personal  estate,  so  that  we  cannot 
see  any  way  by  which  the  executors  can  escape  converting  the  land 
into  money,  in  order  to  carry  out  the  provisions  of  the  will.  We 
agree  with  the  conclusion  of  the  court  below,  that  "an  equitable 
conversion  is  as  effectually  accomplished  by  the  will,  and  the  duties 
of  the  executors  under  it  are  the  same  as  if  it  contained  a  positive 
direction  to  sell."  It  follows  as  a  matter  of  course  that  if  sold, 
the  proceeds  of  these  lands  must  come  into  the  courts  of  Pennsyl- 
vania for  distribution.  The  tax,  therefore,  falls  upon  the  legacies 
themselves,  rather  than  upon  the  lands  which  are-  now  appraised 
in  order  to  determine  the  amount  of  the  tax. 


CJiAP.  IV.]  vanuxem'.s  estate.  321 

The  opinion  of  the  cmirt  hclow  hap  met  so  clearly  the  questions 
involved  in  thi^  appeal  and  has  disposed  of  them  so  fully,  that 
further  elaboration,  ujion  our  part,  is  both  difficult  and  unnecessary. 

The  assignments  of  error  are  overruled  and  the  decree  of  the 
orphans'  court  is  affirmed. 

Mitchell,  C.  J.,  dissenting.  1  would  reverse  this  judgment. 
The  taxation  of  land  not  within  the  territorial  limits  of  the  state  is 
admittedly  beyond  the  legislative  power,  and  the  taxation  of  the 
value  or  the  proceeds  of  such  land,  under  whatever  form  or  disguise 
it  is  sought  to  be  exercised,  is  upon  the  border  line  of  questionable 
jurisdiction  and  should  be  scrutinized  closely  with  every  presump- 
tion against  its  validity. 

But  even  if  the  lands  in  this  case  were  within  Pennsylvania  there 
was  no  proper  conversion.  They  were  devised  as  land  to  devisees 
named,  and  there  is  in  the  will  no  direction  to  sell  but  only  a  power 
and  discretion  to  do  so  when  the  executors  should  deem  it  expedient. 
The  learned  court  below  founded  its  judgment  on  the  doctrine  of 
necessity  to  carry  out  the  will.  But  on  this  point  the  case  falls 
clearly  within  the  principle  of  Hunt's  Appeal,  105  Pa.  128  (141), 
where  it  was  held,  "the  most  that  can  be  said  is  that  the  testator 
made  a  mistake  as  to  the  extent  of  his  estate,  and  a  sale  of  his  real 
estate  became  necessary  in  order  to  pay  his  debts.  But  this  is  not 
to  the  purpose.  The  scheme  of  his  will  did  not  contemplate  this, 
and  if  by  reason  of  the  depreciation  of  his  property,  or  for  other 
causes  a  necessity  to  sell  the  real  estate  arose  which  was  not  foreseen 
by  the  testator,  it  will  not  work  a  conversion  for  the  obvious  reason 
that  a  conversion  is  always  a  question  of  intent." 

The  necessity  to  sell  which  effects  a  conversion  is  one  which  must 
have  been  contemplated  by  the  testator  in  order  to  carry  out  the 
scheme  of  his  will,  not  a  necessity  as  a  matter  of  fact  arising  out 
of  the  actual  circumstances  of  the  estate  after  his  death.  Suppose 
the  personalty  though  insufficient  to  pay  the  pecuniary  legacies  at 
the  time  of  testator's  death  had  so  increased  in  value  as  to  be 
sufficient  before  the  time  of  payment,  clearly  there  would  have  been 
no  conversion  which  would  require  or  justify  an  exertion  of  the 
executor's  discretion  which  would  subject  these  devisees'  land  to  the 
payment  of  this  tax ;  and  equally  so  in  the  contrary  case  of  a  suffi- 
ciency of  personalty  at  the  death  and  a  subsequent  decline  in  value. 
Either  case  would  come  exactly  within  the  quotation  above  made 
from  Hunt's  Appeal.  To  attribute  the  necessity  to  sell  as  within 
the  contemplation  of  the  testator  seems  to  me  like  attributing  the 
gift  of  foresight  to  those  who  are  wise  after  the  event.  The  testator 
gave  large  pecuniary  legacies,  but  he  had  personal  estate  of  still 
larger  nominal  value,  and  with  this  knowledge  of  his  affairs  he  gave 
his  executors  not  a  direction  l)ut  only  a  discretion  to  sell.  Clearly 
he  did  not  contemplate  a  sale  as  a  necessity  but  only  as  a  contingency 
to  be  dealt  with  in  the  discretion  of  his  executors. 

I  regard  the  present  decision  as  at  variance  with  the  principles 
of  all  our  later  decisions,  particularlv  Hunt's  Appeal,  supra ;  Hand- 
ley's  Estate,  181  Pa.  339;  Yerkes  v.  Yerkes.  200  Pa.  419;  Sauer- 
bier's  Est.,  202  Pa.  187:  and  Coopers  Est.,  206  Pa.  628. 


322  MCCURDY  V.    MCCUBDY.  [cHAP.  IV. 

McCURDY   V.    McCURDY. 
Supreme  Judicial  Court  of  Massachusetts.     1908. 

[Reported  197  Mass.  248.] 

Knowlton,  C.  J.  This  is  a  bill  for  instructions  to  the  plaintiffs 
as  executors  of  the  will  of  John  Albro  Little,  late  of  Morris  Plains 
in  the  State  of  New  Jersey,  deceased.  The  testator  left  real  estate 
in  Massachusetts  whose  value,  as  appraised,  if  free  from  encum- 
brances, is  $241,000.  This  is  subject  to  a  mortgage  to  the  Cam- 
bridge Savings  Bank  of  $120,000  and  interest.  He  also  left  personal 
estate  here  to  the  amount  of  about  $!),000,  and  an  undivided  interest 
in  other  real  estate,  which  was  appraised  at  about'  $12,000.  In 
regard  to  this  interest  and  the  personal  estate  no  question  arises. 
The  question  before  us  is  whether  the  collateral  inheritance  tax  to 
bo  paid  under  the  R.  L.  c.  15,  §1,  shall  be  computed  upon  the  value 
of  the  property  without  deduction  for  the  encumbrance  of  the  mort- 
gage, or  upon  the  value  of  the  equity  of  redemption. 

The  testator  was  a  non-resident,  and  by  the  terms  of  the  statute 
the  tax  on  the  succession  is  only  upon  "■  property  within  the  jurisdic- 
tion of  the  Commonwealth."  The  property  in  question  is  subject 
to  a  lien  in  favor  of  a  Massachusetts  creditor  of  the  testator.  The 
value  of  the  testator's  interest  in  it  at  the  time  of  his  death  was 
only  the  value  of  the  equity  of  redemption.  The  savings  bank  is 
entitled  to  be  paid  out  of  the  real  estate  if  not  paid  otherwise.  If 
it  should  proceed  to  collect  its  debt  by  an  action  at  law  against  the 
executors,  they  would  be  obliged,  acting  only  in  their  official  capa- 
city under  their  appointment  of  Massachusetts,  to  obtain  a  license 
to  sell  this  real  estate  for  the  payment  of  the  debt,  in  which  case 
all  that  would  remain  within  the  jurisdiction  of  the  Commonwealth 
would  be  the  excess  of  the  proceeds  of  the  real  estate  above  the 
amount  of  the  indebtedness  under  the  mortgage.  If  the  savings 
bank  should  forclose  its  mortgage  by  a  sale,  the  result  would  be 
the  same. 

The  Attorney  General,  in  behalf  of  the  treasurer  and  receiver 
general  of  the  Commonwealtli,  contends  that  the  doctrine  of  equit- 
able conversion  and  exoneration  should  be  applied  to  relieve  the 
land  from  the  encumbrance  of  the  mortgage,  and  that  the  executors 
should  bring  the  proceeds  of  personal  estate  from  the  place  of  dom- 
iciliary administration  in  New  Jersey  and  apply  it  to  the  payment 
of  the  debt  here,  so  as  to  leave  the  land,  free  from  the  encumbrance, 
within  the  jurisdiction  of  the  Commonwealth. 

The  answer  to  this  contention  is,  first,  that  the  rights  and  obliga- 
tions of  all  parties  in  regard  to  the  payment  of  a  tax  of  this  kind 
are  to  be  determined  as  of  the  time  of  the  death  of  the  decedent. 
This  has  been  settled  by  our  decisions.  Hooper  v.  Bradford,  178 
Mass.  95.  Howe  v.  Howe,  179  Mass.  546.  Kingsbury  v.  Chapin, 
196  Mass.  533.  Secondly,  the  law  of  equitable  conversion  ouglit 
not  to  be  invoked  merely  to  subject  property  to  taxation,  especially 
when  the  question  is  one  of  jurisdiction  between  different   States. 


CHAP.    IV.]  MCCURDY    V.    MCCUBDY.  323 

In  Custance  v.  Bradshaw,  i  Hare,  315,  3^5,  it  was  said  that  "equity 
would  not  alter  the  nature  of  the  property  for  the  purpose  only  of 
subjecting  it  to  fiscal  claims  to  which  at  law  it  was  not  liable  in  its 
existing  state."  In  Matter  of  On'emian,  25  App.  Div.  (N.  Y.)  94, 
the  court  says  that  equitable  conversion  sliould  not  be  invoked 
merely  for  the  purpose  of  subjecting  the  property  to  taxation.  To 
the  same  effect  is  Matter  of  Sutton,  3  Ai)p.  Div.  (N.  Y.)  208; 
affirmed  in  140  N.  Y.  G18.  In  Pennsylvania  a  different  rule  is 
established.     Ilandley's  estate,  181  Pcnn.'St.  339. 

The  only  ground  on  which  such  a  tax  can  be  imposed  upon  the 
succession  to  property  of  a  non-resident  is  that  the  property  is 
within  the  jurisdiction  of  the  Commonwealth.  For  the  purpose  of 
increasing  the  amount  within  our  jurisdiction  the  executors  or  ad- 
ministrators here  cannot  be  compelled  to  bring  the  proceeds  of 
personal  estate  from  the  place  of  domiciliary  administration  in  an- 
other State,  to  pay  debts  of  Massachusetts  creditors,  secured  by  a 
mortgage  or  lien  upon  land  in  this  Commonwealth.  Indeed,  if  the 
ancillary  administrators  were  different  persons  from  the  domiciliary 
administrators  or  executors,  they  could  not  obtain  such  proceeds 
for  such  a  use  in  a  foreign  state.  If  the  property  subject  to  ancillary 
administration  was  not  enough  to  pay  local  creditors,  these  creditors 
would  be  obliged  to  resort  to  the  domiciliary  administrator. 

In  this  State  and  in  New  York  it  is  decided  that  personal  property 
within  the  jurisdiction  of  a  foreign  State  is  subject  to  a  succession 
tax  in  the  place  of  the  decedent's  domicil.  Frothingham  v.  Shaw, 
ITS  Mass.  59.  In  re  Swift,  137  X.  Y'.  77.  Matter  of  Curtis,  143 
N.  Y.  219.  This  doctrine  furnishes  a  strong  implication  that  per- 
sonal property  in  the  decedent's  domicil  should  not  be  used  to  relieve 
property  subject  to  a  succession  tax  under  the  ancillary  administra- 
tion of  another  State  by  discharging  liens  upon  it  for  the  purpose 
of  increasing  this  succession  tax.  The  tax  is  to  be  estimated  in 
reference  to  the  property  that  is  within  the  jurisdiction  of  the 
Commonwealth  at  the  time  of  the  testator's  death.  Callahan  v. 
W()odl)ridge,  171  Mass.  595.  Greves  v.  Shaw,  173  Mass.  205.  Moody 
V.  Shaw,  173  Mass.  375. 

The  precise  point  before  us  has  been  decided  in  Xew  Y'ork  ad- 
versely to  the  contention  of  the  Attorney  General,  although,  under 
the  laws  of  that  State,  the  relative  rights  and  obligations  of  mort- 
gagors and  mortgagees  are  not  exactly  the  same  as  in  Massachusetts. 
Matter  of  Skinner,  106  App.  Div.  (X.  Y.)  217.  Matter  of  Sutton, 
3.  App.  Div.  (X.  Y.)  208.  See  also  Matter  of  Strong,  17  X.  J. 
Law  J.  234. 

In  Kingsbury  v.  Chapin,  196  Mass.  533,  the  right  of  an  ancillary 
administrator  to  transmit  ])ersonal  property  for  the  payment  of 
debts  in  the  place  of  the  domiciliary  administration  in  the  same 
proportion  as  the  property  there  is  needed  and  used  for  a  like  pur- 
pose, is  recognized.  This  is  because  assets,  after  paying  local  debts, 
may  always  be  transmitted  to  the  domiciliary^  administrator.  They 
may  be  used  by  him  for  paying  debts,  or  if  not  needed  for  that 
purpose  they  will  be  distributed.    But  so  much  of  them  as  is  needed 


324  TLrXKETT    V.    OLD   COLONY   TPa'ST   CO.  [ciTAP.    IV. 

for  the  payment  of  debts  does  not  pass  in  succession,  and  cannot 
properly  be  taxed.  This  rule  does  not  suggest  the  transmission  of 
personal  property  from  the  place  of  original  administration  for  the 
payment  of  debts  in  the  place  of  ancillary  administration. 

We  are  of  opinion  that  the  amount  of  the  indebtedness  under 
the  mortgage  is  to  be  subtracted  from  the  value  of  the  real  estate,  to 
determine  the  amount  on  which  the  tax  should  be  computed.  See 
Kingsbury  v.  Chapin,  uhi  supra. 

So  ordered. 


PLUNKETT  V.  OLD  COLONY  TRUST  CO. 

SuPEEME  Judicial  Court  of  Massachusetts.     1919. 
[Reported  233  Mass.  471.] 

RuGG,  C.  J.  This  case  is  reserved  upon  the  pleadings  for  the 
determination  of  this  court.  The  material  facts  are  that  William 
B.  Plunkett,  late  of  Adams  in  the  county  of  Berkshire,  died  testate 
on  the  twenty-fifth  of  October,  1917,  leaving  as  his  heirs  at  law 
two  sons,  each  of  whom  had  children,  and  one  of  whom  has  since 
deceased.  His  will  was  executed  on  the  fifteenth  of  September, 
1909,  the  first  codicil  on  the  twenty-third  of  October,  1911,  and 
the  second  codicil  on  the  nineteenth  of  July,  1917.  Xone  of  these 
testamentary  instruments  contain  any  provision  respecting  the  pay- 
ment of  succession  or  inheritance  taxes  under  either  State  or  federal 
laws.  The  State  legacy  and  succession  tax  had  been  enacted  before 
the  execution  of  the  will  and  remained  in  force  as  amended  at  the 
time  of  the  execution  of  both  codicils.  St.  1909,  c.  490,  Part  IV. 
The  federal  "  estate  tax  "  was  enacted  shortly  before  the  execution 
of  the  last  codicil.  The  estate  of  the  testator  was  of  such  size  that 
the  federal  tax  assessed  upon  it  was  $72,476.15.  The  provision  for 
one  son  under  the  will  and  codicils  was  a  gift  outright  of  property 
valued  at  $14,275,  and  a  gift  of  property  valued  at  $382,616.75 
to  a  trustee  upon  a  spendthrift  trust,  to  pay  the  income  to  that  son 
during  his  life,  with  other  life  estates  at  his  death  and  gifts  over 
of  the  remainder.  A  legacy  amounting  to  $126,760  was  given  to 
a  trustee  to  hold  until  the  testator's  grandchildren  should  "arrive 
at  the  age  of  twenty-five  years  respectively,"  when  it  was  to  be 
divided  equally  among  them.  The  residue  of  the  estate,  valued  at 
$381,109.72,  was  bequeathed  to  the  testator's  other  son.  This  peti- 
tion by  the  executors  is  brought  to  determine  whether  this  federal 
tax  which  has  been  paid  should  be  charged  entirely  against  the 
residue  of  the  estate  or  apportioned  pro  rata  among  all  the  devisees 
and  legatees.  That  is  the  single  question  presented.  An  important 
factor  in  the  answer  of  this  question  is  the  meaning  of  the  federal 
statute  on  the  point  whether  the  tax  is  imposed  with  reference  to 
the  entire  net  estate  or  with  reference  .to  the  particular  devises, 
bequests  or  distributive  shares. 


CHAP.    IV.]         PLUNKETT    V.    OLD    COLONY    TRUST    CO.  325 

The  tax  was  established  by  the  act  of  Congress  of  September  8, 
19H),  entitled  "An  Act  to  increase  the  revenue,  and  for  other 
purposes,"  as  amended  by  the  Acts  of  March  3,  1!J17,  and  of  October 
3,  11)17.  The  relevant  sections  of  the  successive  acts  are  grouped 
respectively  under  "Title  II,  Estate  Tax,"  "  Title  III,  Estate  Tax," 
and  "Title  IX,  War  Estate  Tax."  The  tax  thus  entitled  is  "im- 
posed upon  the  transfer  of  the  net  estate  of  every  decedent  dying 
after  the  passage  of  this  Act."  §  201.  Subsequent  sections  contain 
directions  for  the  ascertainment  of  the  net  value  of  estates  of  de- 
ceased persons.  Briefly  and  compendiously  stated  the  net  value  com- 
prehends all  estate  left  by  a  decedent  within  the  purview  of  the  act 
after  deducting  debts,  losses  and  expenses  of  administration  and 
an  exemption  of  $50,000.  §§  202,  '^03.  The  tax  is  in  general  terms 
and  is  a  percentage  upon  the  amount  of  the  net  estate.  §  201.  It 
is  due  one  year  after  the  death  of  the  decedent.  §  204.  It  must 
be  paid  by  the  executor  or  administrator,  and  no  direction  is  found 
in  the  act  for  apportionment  among  legatees  or  devisees.  §  207. 
The  intent  is  expressed  by  §  208  that,  unless  otherwise  directed  by 
will,  tho  tax  shall  be  paid  out  of  the  estate  before  distribution.  The 
tax,  if  not  sooner  paid,  is  made  a  lien  upon  the  gross  estate  for  a 
period  of  ten  years,  except  that  it  is  divested  as  to  such  part  as  is 
used  to  defray  charges  against  the  estate  and  expenses  of  administra- 
tion when  allowed  by  the  court  of  appropriate  jurisdiction.     §  209. 

The  contention  that  the  tax  is  on  the  particular  devises,  bequests 
or  distributive  shares  is  met  at  the  outset  by  the  heading  or  title 
given  to  the  tax  by  the  statute  itself,  which  describes  the  kind  of 
pecuniary  imposition  levied  as  an  "  Estate  Tax."  This  is  properly 
to  be  considered  in  interpreting  a  statute  of  the  United  States. 
Knowlton  v.  Moore,  178  U.  S.  41,  65.  The  sections  of  the  act 
prefaced  by  this  heading  or  title  refer  exclusively  to  the  value  of 
the  "  net  estate "  as  the  basis  for  the  ascertainment  of  the  tax. 
There  is  no  mention  whatever  in  this  connection  of  legacies,  devises 
or  distributive  shares.  They  are  wholly  omitted.  The  statute 
ignores  utterly  the  disposition  made  of  the  estate  by  the  testator 
or  by  the  law  as  to  intestate  property,  and  looks  only  to  the  net 
estate  itself  as  defined. 

The  words  of  the  act  of  Congress  imposing  the  tax  point  strongly 
toward  the  interpretation  that  the  tax  is  on  the  estate  and  not  on 
the  particular  deWses,  legacies  or  distributive  shares.  The  words 
"net  estate"  are  used  uniformly  in  the  operative  parts  of  the  act 
to  the  exclusion  of  phrases  of  other  significance. 

Two  considerations  fortify  this  interpretation. 

(1)  The  war  revenue  act  of  1898,  being  an  act  approved  on  June 
13  of  that  year,  30  U.  S.  Sts.  at  Large,  464,  465,  plainly  and  by 
its  express  words  imposed  a  tax  on  particular  legacies  and  distribu- 
tive shares  arising  from  the  property  left  by  a  decedent  and  not  on 
the  whole  personal  estate  so  left.  Knowlton  r.  Moore,  178  U.  S. 
41,  43,  65,  67,  71.  The  contrast  between  the  terms  of  that  earlier 
act  and  those  of  the  present  throws  a  clear  light  on  the  meaning 
of  the  act  here  in  question.     If  Congress  had  intended  to  levy  a 


326  PLrXKETT    V.    OLD   COLONY    TRUST   CO.  [cHAP.    IV. 

tax  on  legacies  and  distributive  shares,  it  naturally  would  have 
adopted  the  words  of  its  act  of  1898,  which  had  been  already  used 
and  whose  signification  had  been  established  by  the  highest  judicial 
authority.  Employment  of  other  language  of  quite  dili'erent  import 
indicates  a  change  of  purpose. 

(2)  It  is  permissible  to  examine  records  of  legislature  proceed- 
ings incident  to  the  passage  of  a  statute  to  illumine  its  doubtful 
language,  although  its  plain  meaning  cannot  be  thereby  affected; 
but  for  this  purpose  resort  commonly  cannot  be  had  to  the  debates 
of  individual  members.  Old  South  Association  in  Boston  v.  Boston, 
212  j\lass.  209,  305,  and  cases  there  collected.  United  States  v.  St. 
Paul,  Minneapolis  &  Manitoba  Eailway,  247  U.  S.  310,  318.  The 
design  of  tbe  framers  of  the  act  of  1916  to  establish  an  estate  tax 
as  distinguished  from  a  legacy  or  distribution  tax  is  manifested  by 
the  report  of  the  committee  on  ways  and  means  of  the  national 
House  of  Representatives,  to  which  the  revenue  bill  had  been  referred. 
In  that  report  made  on  July  5,  1916  (Report  No.  922,  64th  Con- 
gress, 1st  Session),  page  5,  under  the  heading  "Estate  Tax,"  are 
found  these  words:  "Thirty  States  have  laws  imposing  inheritance 
or  share  taxes  both  upon  direct  and  collateral  heirs.  Twelve  other 
States  have  laws  imposing  inheritance  taxes  upon  collateral  heirs. 
Your  committee  deemed  it  advisable  to  recommend  a  federal  estate 
tax  upon  the  transfer  of  the  net  estate  rather  than  upon  the  shares 
passing  to  heirs  and  distributees  or  divisees  and  legatees.  The 
federal  estate  tax  recommended  forms  a  well-balanced  system  of 
inheritance  taxation  as  between  the  Federal  Government  and  the 
various  States,  and  the  same  can  be  readily  administered  with  less 
conflict  than  a  tax  based  upon  the  shares." 

An  estate  tax  as  distinguished  from  a  legacy  or  succession  tax  is 
well  recognized.  It  was  said  in  Minot  v.  Winthrop,  162  Mass.  113, 
124,  "the  right  or  privilege  taxed  can  perhaps  be  regarded  either 
as  the  right  or  privilege  of  the  owner  of  property  to  transmit  it  on 
his  death,  by  will  or  descent,  to  certain  persons,  or  as  the  right  or 
privilege  of  these  persons  to  receive  the  property."  The  difference 
between  the  nature  of  the  two  kinds  of  taxes  was  pointed  out  and 
defined  by  a  quotation  from  Hanson's  Death  Duties,  by  the  present 
Chief  Justice  of  the  United  States  in  Knowlton  v.  Moore,  178  U.  S. 
41,  at  page  49,  in  these  words :  "  What  it  [that  is,  an  estate  tax] 
taxes  is  not  the  interest  to  which  some  person  succeeds  on  a  death, 
but  the  interest  which  ceased  by  reason  of  tbe  deatli."  An  estate 
tax  is  imposed  upon  the  net  estate  transferred  by  death  and  not 
upon  the  succession  resulting  from  death.  In  re  Roebling,  89  N. 
J.  Eq.  163. 

Tbe  conclusion  seems  to  us  to  follow  irresistil)ly  that  the  tax 
here  in  question  is  an  estate  and  not  a  legacy  or  succession  tax. 
This  is  in  accord  with  the  decision  in  Matter  of  Hamlin,  226  N.  Y. 
407.  Although  the  precise  point  was  not  presented  for  decision 
in  Corbin  v.  Townshend,  92  Conn.  501,  505,  People  v.  Pasficld, 
284  111.  450,  453,  State  r.  Probate  Court  of  Hennepin  County,  139 
Minn.  210,  211,  or  Knight's  Estate,  261  Penn.  St.  537,  539,  in  each 


CHAP.    IV.]  OLD    COLONY    TRUST    CO.    V.    BURRILL.  327 

of  those  decisions  there  is  a  dictum  to  the  effect  that   thi.-   is  an 
estate  tax.     See,  however,  Fuller  v.  Gale,  78  X.  H.  544. 

The  provisions  of  J:;  208  of  the  act  respectinfj  "a  just  and  equit- 
able contril'Ution "  to  one  from  whose  share  in  the  estate  the  lax 
has  been  collected  "  by  the  persons  whose  interest  in  the  estate  .  .  . 
would  have  been  reduced  "  if  the  tax  had  been  paid  before  distrilju- 
tion,  or  "  whose  interest  is  subject  to  equal  or  prior  liability  for  the 
Payment  of  taxes,"  afford  no  warrant  for  applying  what  may  be 
thought  in  a  special  instance  to  be  general  equitable  considerations 
in  opposition  to  fixed  principles  as  to  the  settlement  of  estates.  That 
section  is  inapplicable  lo  the  facts  here  diselosed. 

The  further  step  follows  inevitably  from  what  has  been  said  that 
the  law  nuikes  no  provision  for  apportionment  of  the  tax  among 
legatees,  but  leaves  it  simply  to  be  paid  out  of  the  estate  before 
distribution  is  made. 

The  will  and  codicils  of  the  testator  contain  no  direction  respect- 
ing the  payment  of  this  tax.  There  is  nothing  written  in  any  of 
these  testamentary  instruments  which  rightly  can  be  construed  as 
expressing  the  purpose  of  the  testator  on  the  subject.  Although 
the  last  codicil  was  executed  after  the  enactment  of  the  federal 
taxing  law,  no  reference  is  found  therein  touching  the  payment  of 
the  taxes  imposed.  So  far  as  any  inference  may  be  drawn,  it  would 
seem  to  be  that  taxes  were  intended  to  fall  where  the  law  placed 
them.  It  is  not  permissible  for  us  to  speculate  as  to  the  existence 
of  an  intent  to  make  a  different  provision  from  that  provided  by 
law  in  the  absence  of  any  expression  of  testamentary  purpose  on  the 
subject.  It  is  the  general  rule  that,  failing  any  testament^iry  provi- 
sion to  the  contrary,  debts,  charges  and  all  just  obligations  upon  an 
estate  must  be  paid  out  of  the  residue  of  an  estate.  The  benefaction 
conferred  by  the  residuary  clause  of  a  will  is  only  of  that  which 
remains  after  all  paramount  claims  upon  the  estate  of  the  test;itor 
are  satisfied.  Tomlinson  v.  Bury,  145  Mass.  346.  The  tax  is  a 
pecuniary  burden  or  imposition  laid  upon  the  estate.  Boston  v. 
Turner,  201  Mass.  190,  193.  In  its  nature  it  is  superior  to  the 
claims  of  the  residuary  legatee.  Since  neither  the  act  of  Congress 
nor  the  will  and  codicils  make  any  other  provision  for  the  point  of 
ultimate  incidence  of  this  tax,  it  must  rest  on  the  residue  of  the 
estate.  Matter  of  Hamlin,  220  N.  Y.  407,  418,  419.  Decree  is  to 
be  entered  instructing  the  executors  accordingly. 

So  ordered. 


OLD  COLONY  TRUST  CO.  v.  BURRILL. 
Supreme  Judicial  Court  of  Massachusetts.     1921. 

[Reported  l:n  X.  E.  Rep.  321.] 

Pierce,  J.  Charles  L.  Willoughby  died  January  9,  1919,  a  resi- 
dent of  Brookline  in  this  commonwealth.  His  will  and  codicil  were 
allowed,   and   the   petitioner   was   appointed   executor   thereof   by   a 


328  OLI>  COLONY   TRUST  CO.    I'.    BURRILL.  [CHAF.    IV. 

decree  of  the  probate  court  of  Norfolk  county,  on  Februar}-  26, 
1919.  The  property  of  the  testator  at  his  death  was  worth  approx- 
imately $1,527,000,  and  consisted  of  real  estate  in  Massachusetts 
worth  $2'.3,000,  real  estate  in  Illinois  worth  $875,000,  and  securities 
and  other  personal  property  approximately  worth  $630,000.  Tlie 
securities  included  stock  in  corporations  organized  under  the  laws 
of  Illinois,  New  Jersey  and  Wisconsin. 

As  executor,  and  under  the  authority  conferred  upon  such  persons 
by  article  14  of  the  will,  the  petitioner  paid  out  of  the  residue  of 
the  estate  to  the  state  of  Illinois  an  inheritance  tax  assessed  upon 
the  rights  of  the  several  beneficiaries  under  the  will  to  succeed  to 
real  and  personal  property  situated  in  Illinois;  it  paid  to  the  state 
of  New  Jersey  the  inheritance  tax  assessed  upon  the  rights  of  the 
several  beneficiaries  to  succeed  to  certain  shares  of  stock  in  New 
Jersey  corporations ;  it  paid  to  the  state  of  Wisconsin  the  inheritance 
tax  assessed  upon  the  rights  of  the  several  beneficiaries  to  succeed 
to  certain  shares  of  stock  in  a  Wisconsin  corporation;  it  paid  to 
the  state  of  Illlinois,  or  to  Cook  county  in  that  state,  a  tax  upon  the 
specifically  devised  real  estate  in  that  state,  assessed  under  the 
Illinois  Real  Estate  Tax  Law  prior  to  but  payable  after  the  death 
of  the  testator ;  and  it  also  paid  to  the  collector  of  internal  revenue 
at  Boston  an  estate  tax  assessed  under  title  4  of  the  United  States 
Revenue  Act  of  1918  (U.  S.  Comp.  St.  Ann.  Supp.  1919,  §§  63363^ 
a-6336%k). 

All  these  taxes  were  included  in  an  affidavit  of  debts  and  expenses 
filed  with  the  commissioner  of  corporations  and  taxation  for  the 
commonwealth,  the  executor  claiming  that  all  these  taxes  paid  by 
it  from  the  residue  should  be  treated  by  the  Massachusetts  tax 
commissioner  as  debts  and  expenses  of  the  estate,  and  deducted 
from  the  residue  before  the  tax  due  under  the  Massachusetts  In- 
heritance Tax  Law  upon  the  residue  of  the  estate  was  computed. 
The  commissioner  refused  to  deduct  any  part  of  the  taxes  paid 
under  the  inheritance  tax  laws  of  Illinois,  New  Jersey,  and  Wiscon- 
ein,  as  also  57.29  per  cent  of  the  taxes  paid  upon  the  Illinois  real 
estate  and  under  the  federal  Estate  Tax  Law,  this  percentage  being 
determined  by  the  proportion  which  said  real  estate,  amounting  in 
value  to  $875,000,  bore  to  the  testator's  total  property,  amounting 
in  value  to  $1,527,451.22.  The  commissioner  assessed  the  Mass- 
achusetts inheritance  tax  upon  the  residue  in  accordance  with  his 
rulings  upon  the  question  of  deductions.  If  those  rulings  Avere 
wrong  the  sum  of  $7,022.54  was  improperly  assessed.  The  petitioner 
paidlhe  tax  assessed  under  protest  as  to  the  sum  of  $7,022.54;  and 
in  accordance  with  the  provisions  of  St.  1909,  c.  490,  part  4,  §  20, 
now  G.  L.  c.  65,  §  27,  filed  its  petition  for  abatement  in  the  probate 
court  for  the  county  of  Norfolk  and  that  court  decreed  that  the  peti- 
tion be  dismissed.  '  The  case  is  before  this  court  on  appeal  from  the 
decree  of  the  probate  court.  _    ^ 

The  question  presented  by  the  appeal  is  whether  the  commissioner 
should  have  deducted  from  the  estate  upon  which  the  tax  upon  the 
residue  was  to  be  computed,  the  amounts  which  the  petitioner  paid 


CIIAr.    IV.]  OU)   COLONY   TRUST   CO.    V.    BUKiaLI,.  329 

to  other  states  in  which  the  decedent  had  property  at  his  death, 
the  amount  paid  the  United  .Sta»te.s  under  tlie  federal  Estate  Tax 
Law,  and  the  whole  anujunt  paid  of  taxes  assessed  upon  foreign 
real  estate  when  such  tax  was  assessed  before  but  was  payable  after 
the  death  of  the  testator. 

[1]  St.  1909,  c.  490,  part  4,  §  1,  formerly  St.  1907,  c.  503,  §  1, 
now  G.  L.  c.  65,  §  1,  provides  that  — 

"All  property  within  the  jurisdiction  of  the  commonwealth  .  .  . 
belonfjing  to  inhabitants  of  the  commonwealth  ,  .  ,  which  shall 
pass  by  will  .  .  .  shall  be  subject  to  a  tax," 

St.  1907,  c.  .5G;3,  5^  G,  St.  1909,  c.  490,  part  4,  §  6,  G.  L.  c.  6o,  § 
13,  in  part  provide  as  follows,  as  respects  the  value  of  the  property 
of  the  estate  for  taxation  : 

"  Except  as  hereinafter  provided,  said  tax  shall  be  assessed  upon 
the  actual  value  of  the  property  at  the  time  of  the  death  of  the 
decedent." 

The  phrase  of  St.  1909,  c.  490,  part  4,  §  1,  "which  shall  pass  by 
will,"  marks  the  time  of  the  vesting  of  the  right  and  not  the  time 
of  its  enjoyment  in  possession,  or  the  time  when  the  property  or 
the  amount  of  the  property  less  debts  and  charges  of  administration 
passes;  as  it  does  the  time  when  the  tax  shall  be  computed  upon 
the  amount  of  property  which  has  passed.  Callahan  v.  Woodbridge, 
171  Mass.  595,  51  X.  E.  176.  The  rights  of  all  parties,  including 
the  right  of  the  commonwealth  to  its  tax,  vest  at  the  death  of 
the  testator.  Kingsbury  v.  Chapin,  196  Mass.  533,  538,  83  N.  E. 
700,  13  Ann.  Cas.  738.  The  statement  in  Hooper  v.  Shaw,  176 
Mass.  190,  at  191,  57  N".  E.  361,  "that  these  words  most  naturally 
signify  the  property  which  the  legatee  actually  would  get  were  it 
not  for  the  state  tax  imposed  by  the  sentence  in  which  the  words 
occur,"  as  pointed  out  in  Hooper  v.  Bradford,  178  Mass.  95,  98, 
59  N.  E.  678,  is  not  authority  for  any  contention  that  the  time 
when  the  legatee  gets  possession  is  the  time  for  the  valuation. 

[2]  As  the  property  passes  to  the  beneficiaries  for  the  purpose  of 
taxation  with  the  death  of  the  testator,  and  as  the  tax  must  be 
computed  on  the  value  of  the  property  after  the  deduction  of 
all  existing  lawful  charges,  debts  and  expenses  of  administration 
(Hooper  v.  Bradford,  178  Mass.  95,  59  N.  E.  678;  Howe  v.  Howe, 
179  Mass.  546,  61  X.  E.  225,  55  L.  R.  A.  626 ;  MeCurdv  v.  McCurdy, 
197  Mass.  248,  252,  83  X.  E.  881,  16  L.  R.  A.  [X.  S.]  329,  14 
Ann.  Cas.  859;  Pierce  v.  Stevens,  205  Mass.  219,  91  X.  E.  319; 
Baxter  v.  Treas.  &  Eecvr.  Gen.,  209  Mass.  459,  95  X^.  E.  854;  Hill 
V.  Treasurer  &  Eecvr.  Gen.,  227  Mass.  331,  116  X.  E.  509),  it  follows 
that  the  question  whether  the  inheritance  taxes  of  other  states, 
the  local  taxes  laid  on  land  in  foreign  states,  and  the  United  States 
estate  tax  are  to  be  deducted,  is  resolved  into  the  question  whether 
the  several  payments  were  made  to  relieve  the  estate  froni  a  general 
charge  upon  it,  to  discharge  debts  or  other  obligations  of  the  dece- 
dent or  to  defray  the  legal  expenses  of  administration. 

[3]   As  regards  the  inheritance  taxes  imposed  by  the  states  of 
Illinois,  X^ew  Jersey  and  Wisconsin,  the  executor  does  not  claim 


330  OLD   COLONY    TRUST   CO.    t\    BURRILL.  [ciIAr.    IV. 

that  they  were  paid  because  they  were  a  general  estate  charge  or 
debts  of  the  decedent,  but  contends  that  the  payment  of  them  is 
a  proper  charge  of  administration,  because  the  beneficiaries  who 
received  the  taxed  property  would  have  had  a  chiim  against  it  as 
executor  if  the  property  received  was  reduced  in  amount  by  reason 
of  the  failure  of  the  executor  to  pay  such  taxes  in  the  manner  pro- 
vided bv  the  will  of  the  testator.  Sherman  v.  Moore,  89  Conn. 
190,  93' Atl.  241;  Corbin  v.  Townshend,  93  Conn.  501,  103  Atl. 
647.  It  would  seem  to  be  plain,  in  the  absence  of  the  authorization 
of  the  will,  that  the  charge  upon  the  succession  of  the  foreign  prop- 
erty was  a  tax  which  the  executor  was  required  to  pay  in  order  to 
reduce  that  property  to  possession,  for  the  purpose  of  administration 
and  distribution  (see  Van  Bell's  Estate,  257  Pa.  155,  101  Atl.  316)  ; 
and  equally  plain  that  under  the  will  the  executor  could  not  properly 
leave  the  burden  of  the  foreign  tax  to  remain  where  it  fell,  without 
a  violation  of  its  legal  obligation  to  the  beneficiaries.  It  follows 
that  the  refusal  of  the  commonwealth  to  deduct  the  amount  paid 
by  the  executor,  in  discharge  of  the  inheritance  taxes  imposed  by 
other  states,  was  error. 

[4,  5]  The  tax  assessed  upon  land  in  Illinois,  prior  to  but  payable 
after  the  death  of  the  testator,  was  not  a  charge  upon  the  general 
estate ;  nor  was  it  a  debt  of  the  testator  or  of  his  estate,  in  the  absence 
of  an  express  statute  of  which  we  have  no  evidence.  Pierce  v. 
Boston,  3  Mete.  520;  Appleton  v.  Hopkins,  5  Gray,  530;  Boston, 
V.  Turner,  201  Mass.  190,  87  N.  E.  634 ;  New  Jersey  v.  Anderson, 
203  U.  S.  483,  27  Sup-.  Ct.  137,  51  L.  Ed.  284;  People  v.  Dummer, 
274  III.  637,  643,  113  N".  E.  934.  It  was,  however,  a  liability  and 
an  obligation  of  the  estate  upon  which  it  was  assessed,  which  the 
owner  in  his  lifetime  or  the  executor  of  the  owner  must  discharge 
or  suffer  if  he  would  save  the  loss  of  that  property.  "  Terra  debit, 
homo  solvit."  It  would  seem  to  be  a  matter  of  indifference  whether 
the  procedure  of  recovery  is  that  of  an  action  in  personam  or  in 
rem.  In  either  case  the  burden  of  the  obligation  is  a  charge  of 
administration. 

[6]  The  United  States  estate  tax  should  have  been  wholly  de- 
ducted. In  its  nature  such  a  tax  is  a  charge  upon  the  net  estate 
transferred  by  death,  and  not  upon  the  succession  resulting  from 
death.  Hooper  v.  Shaw,  176  Mass.  190,  57  N.  E.  361;  Plunkett 
i:  Old  Colony  Trust  Co.,  233  Mass.  471,  475,  124  N.  E.  265,  7  A. 
L.  E.  696;  Matter  of  Hamlin,  226  N.  Y.  407,  124  N.  E.  4,  7  A.  L. 
R.  701;  People  v.  Northern  Trust  Co.,  289  III.  475,  124  N.  E. 
662,  7  A.  L.  R.  709;  Corbin  v.  Baldwin,  92  Conn.  99,  101  Atl. 
834,  Ann.  Cas.  1918E,  932;  In  re  Knight's  Estate,  261  Pa.  537, 
104  Atl.  765.  The  estate  upon  the  death  is,  to  the  extent  of  the 
tax,  instantly  depleted.  People  v.  Bemis,  68  Colo.  48,  189  Pac. 
32;  United  States  v.  Perkins,  163  U.  S.  625,  630,  16  Sup.  Ct. 
1073,  41  L.  Ed.  287. 

The  decree  of  the  probate  court  must  be  reversed,  and  the  cause 
recommitted  for  action  in  accordance  with  this  opinion. 

Ordered  accordingly. 


CHAP,     v.]  RICHARDSON    V.    BOSTON.  331 

CHAPTER   V. 

OBLIGATION  OF  A  TAX. 

RICHARDSON  V.  BOSTON. 
Supreme  Judicial  Court  of  Massachusetts.     1889. 

[Reported  148  Mass.  508.] 

Holmes,  J.  These  are  suits  to  recover  taxes  for  the  year  1883, 
upon  two  estates  taken  by  the  Coininonwealth  on  May  25,  1883, 
under  St.  1882,  c.  262.  The  legal  title  to  one  of  them  was  in  the 
jjlaintitl's  as  trustees  under  the  will  of  Samuel  A.  Way,  (Miner  v. 
I'ingree,  110  Ma.ss.  4T,)  and  as  to  the  tax  upon  that  one,  the  only 
question  is  whether  the  taking  relieved  the  plaintiffs  of  liability. 
The  taking,  of  course,  put  an  end  to  the  city's  lien  upon  the  land, 
and  to  its  right  to  sell  it.  But  as  the  taking  was  after  May  1,  the 
plaintiifs  were  not  discharged  if  they  were  personally  liable  for 
the  tax  under  our  statutes,  Kearns  v.  Cunniff,  138  Mass.  434,  437. 
See  Pub.  Sts.  c.  11,  §  13;  Amory  v.  Melvin,  112  Mass.  83,  87;  Hill 
V.  Bacon,  110  Mass.  387,  388.  We  are  of  opinion  that  they  were 
so  liable. 

The  Public  Statutes  provide  remedies,  "  if  a  person  refuses  or 
neglects  to  pay  his  tax,"  lirst,  by  distress  of  goods  (Pub.  Sts.  c.  12, 
§  '8)  ;  next,  by  imprisonment  (§  14)  ;  finally,  by  action  (§  20). 
It  is  settled  that  the  remedy  by  imprisonment  applies  to  taxes  on 
land.  Snow  v.  Clark,  9  Gray,  190.  The  statutes  plainly  tell  us 
that  the  remedy  by  distress  also  applies  to  such  taxes.  For,  by 
§  23,  a  distress  of  cattle,  etc.,  belonging  to  the  owner  of  an  estate 
taxed  to  another,  is  authorized  "  in  the  same  manner  as  if  such 
stock  or  produce  were  the  property  of  the  person  so  taxed,"  thus 
clearly  assuming  that  the  cattle  of  the  person  taxed  may  be  dis- 
trained. The  same  conclusion  follows  from  the  fact  that  the  remedy 
by  imprisonment  is  only  given  when  sufficient  goods  cannot  be  found 
to  be  levied  upon  (§  14).  Lothrop  v.  Ide,  13  Gray,  93.  Hall  v. 
Hall,  3  Allen,  5.  Snow  v.  Clark,  9  Gray,  190.  It  seems  to  us  very 
plain,  that  the  third  remedy,  by  action,  is  of  equal  scope,  and  that 
the  words  "  when  a  person  neglects  to  .pay  his  tax  "  cannot  be  con- 
strued to  exclude  taxes  on  real  estate  in  this  section,  when  they  are 
construed  to  include  them  in  the  others.  It  is  to  be  remembered, 
also,  that  taxes  on  real  estate  are  assessed,  not  to  the  estate,  but 
"to  the  person"  who  is  owner  or  in  possession  on  May  1.  Pub. 
Sts.  c.  11,  §  13. 

The  history  of  our  legislation  adverted  to  in  Sherwin  v.  Boston 
Five  Cents  Savings  Bank,  137  Mass.  444,  if  it  cannot  be  said  to 
furnish  any  stronger  argument  than  is  to  be  found  in  the  plain 
words  of  the  Pui)iic  Statutes,  at  least  leads  to  no  different  result. 
By  the  older  statutes,  the  general  remedy  for  refusal  to  pay  any 
rate  or  tax  was  distress,  and,  in  case  of  failure  to  find  sufficient 
chattels  for  the  \e\^\  arrest.  It  applied  to  taxes  on  persons  in  respect 
of  their  land  as  plainly  as  to  other  taxes.     Colonial  Laws  of  1672, 


332  KICHAKDSON    V.    BOSTON.  [cHAP.    V, 

(Whitmore's  ed.)  2-i.  Prov.  Laws,  1692-93,  e.  37,  §  2,  c.  28,  §  6,  c. 
41,  §  7;  1693-9-1,  c.  20,  §  17;  1698,  c.  5,  §  1  ad  finem ;  1699-1700,  c. 
26,  §§  13-15;  1730,  c.  1,  §§  12-15;  1756-57,  c.  11.  St.  1785,  c. 
50,  §  6,  c.  70,  §§  2,  5,  8,  10,  14.     Rev.  Sts.  c.  8,  §§  7,  11. 

The  power  to  sell  real  estate  appears  iu  Prov.  Laws,  1731-32, 
c.  9,  as  the  only  available  means  for  collecting  taxes  upon  unim- 
proved lands  belonging  to  non-resident  proprietors.  Prov.  Laws, 
1735-36,  c.  6;  1745-46,  c.  9,  etc.  St.  1785,  c.  70,  §  7.  St.  1794, 
c.  68.  Rev.  Sts.  c.  8,  §  19.  It  is  then  extended  to  the  case  of 
removing  o\^Tiers  (St.  1785,  c.  70,  §  6),  and  to  some  cases  of  taxes 
assessed  to  persons  in  possession,  but  not  owners  (§  15).  But  the 
last  cited  section  makes  it  plain  that  the  remedies  by  distress  and 
arrest  still  apply  to  taxes  for  land,  and  are  regarded  as  the  general 
remedies,  by  the  proviso  that  if  the  persons  assessed  shall  remain  on 
the  estate  nine  months  after  the  rate  bill  is  committed  to  the  collector, 
"the  said  collector  shall  have  no  other  remedy  than  against  the 
person  or  property  of  the  person  or  persons  assessed  as  aforesaid, 
unless,"  etc.  Distress  and  arrest  for  taxes  on  land  are  expressly 
provided  for  also  by  §  10. 

In  Rev.  Sts.  c.  8,  §  18,  the  lien  for  taxes  on  real  estate  has  become 
general;  but  again  it  is  made  plain  that  the  lien  does  not  exclude 
tne  remedies  formerly  available,  not  only  by  §  16,  corresponding 
to  Pub.  Sts.  c.  12,  §  23,  already  discussed,  but  by  §  19,  which 
provides  that,  when  a  tax  on  real  estate  shall  be  assessed  to  a  non- 
resident owner,  "the  collector  may,  at  his  election,  collect  such  tax 
of  the  said  owner,  in  like  manner  as  in  the  case  of  a  resident  owner, 
or  he  may  collect  the  same  by  the  sale  of  such  real  estate."  As  was 
said,  bv  Shaw,  C.  J.,  of  the  lien  created  by  one  of  the  annual  tax  acts 
which  led  to  §  18  of  the  Revised  Statutes:  "It  is  a  remedy  super- 
added to  those  of  demand,  distress  and  imprisonment;  and  could 
not  have  been  expected  to  be  resorted  to  until  other  means  and 
remedies  had  failed."  Hayden  v.  Foster,  13  Pick.  492,  495.  The 
tax  acts  which  led  to  Rev.  Sts.  c.  8,  §  18,  are  as  follows:  St.  1821, 
c.  107,  §  9  (February  23,  1822),  as  to  lien  in  Boston;  St.  1822,  c. 
108,  §  9  (February  11,  1823),  Boston;  St.  1823,  c.  133,  §  9  (Feb- 
ruary 21,  1824),  lien  made  general;  St.  1829,  c.  27,  §  8  (June  12, 
1829)  ;  St.  1829,  c.  86,  §  8  (March  9,  1830)  ;  St.  1830,  c.  151,  §  8 
(February  28,  1831). 

An  exceptional  personal  liability  was  imposed  by  Prov.  Laws, 
1761-62,  c.  16;  St.  1785,  c.  46,  §  10.  A  right  of  action  for  rates 
was  given  to  the  constables  or  collectors  in  case  of  death  or  removal 
of  the  person  "  duly  rated "  or  of  her  marriage,  being  a  woman, 
before  payment.  St.  1789,  c.  4.  The  words  "duly  rated"  embrace 
the  taxes  on  real  estate.  Rev.  Sts.  c.  8,  §  15,  adopt  this  act  without 
change.  Rich  v.  Tuckerman,  121  Mass.  222.  And  by  St.  1859,  c. 
171,  the  latter  section  was  "extended  to  all  cases  in  which  taxes 
committed  to  a  collector  have  remained  unpaid  for  one  year  after 
such  commitment,"  and  this  has  been  the  law  ever  since.  Gen.  Sts. 
c.  12,  §  19.    Pub.  Sts.  c.  12,  §  20.     If,  as  we  think,  it  is  plain  that 


CHAP,     v.]  HAN.SOX    COUNTY    r.    fJKAY.  333 

the  giving  of  a  lien  upon  real  estate  did  not  displace  the  earlier 
remedies  of  distress  and  arrest,  we  can  perceive  no  reason  why  the 
existence  of  such  a  lien  should  cut  down  the  absolute  generality 
of  the  words  of  the  act  of  1851).  We  therefore  are  of  opinion,  as 
we  have  said,  that  owners  of  real  estate,  properly  taxed  for  it,  are 
personally  liable  for  the  tax.  See  Sherwin  c.  Boston  Five  Cents 
Savings  Bank,  137  Mass.  444;  Cochran  r.  Guild,  lUG  Mass.  2\),  30; 
Burr  I'.  Wilcox,  13  Alien,  '.'69,  272;  Hilson  v.  Shearer,  'J  Met.  504. 
506;  Sherwin  v.  Wigglesworth,  Ud  Mass.  64. 

As  the  plaintilfs  were  personally  liable  as  of  May  1,  and  as  the 
failure  actually  to  assess  and  to  collect  the  tax  on  that  day  does 
not  alTt'ct  tbeir  legal  position,  it  has  not  been  argued  that,  if  they 
had  paid  them,  they  could  have  recovered,  as  on  a  partial  failure 
of  the  consideration  of  the  tax.  Xo  such  argument  could  prevail. 
The  plaintiffs,  if  they  have  been  deprived  of  their  land,  have  the 
price  paid  them  in  its  place,  untaxed  for  the  current  year.  Moreover, 
when  a  personal,  liability  is  imposed,  it  might  be  difficult  to  say 
that  the  consideration  of  the  tax  is  solely  the  protection  of  the 
particular  parcel  of  land,  although  the  lien  is  confined  to  that. 
Jenning  v.  Collins,  99  Mass.  29,  32.  Havden  v.  Foster,  13  Pick. 
492. 

Judgment  for  the  defendant. 


HANSOX  COUXTY  v.  GRAY. 

Supreme  Court  of  South  Dakota.     1899. 
[Reported  12  S.  D.   124.] 

Haxey,  J.  This  appeal  is  from  an  order  sustaining  a  demurrer 
to  the  complaint.  It  appears  upon  the  face  of  the  complaint  that 
the  plaintifl:  is  one  of  the  organized  counties  of  this  state;  that  in 
1888  certain  personal  property,  then  owned  by  defendant  and  situate 
within  the  plaintiff  county,  where  defendant  then  resided,  was  duly 
assessed,  and  certain  faxes  for  territorial,  county,  and  other  purposes 
were  duly  levied  thereon,  which  have  not  been  paid;  that,  before 
the  taxes  so  levied  became  due,  defendant  disposed  of  and  removed 
from  the  territory  all  of  the  personal  property  thus  assessed;  that 
he  has  since  then  been  a  non-resident  of  the  territory  and  state; 
that  when  said  taxes  became  due  and  delinquent  the  treasurer  of 
said  county  was  unable  to  collect  same  by  distress  and  sale  of  per- 
sonal property,  by  reason  of  his  inability  to  find  any  such  property 
of,  or  belonging  to,  the  defendant  in  said  county;  that,  when  such 
taxes  became  due  and  delinquent,  defendant  owned  no  real  property 
to  which  the  lien  of  such  taxes  could  attach. 

Since  prior  to  the  levy  of  these  taxes,  the  statutes  of  this  state 
have  provided  for  the  collection  of  taxes  on  personal  property  by 
distress  and  sale,  and  have  not  at  any  time,  so  far  as  we  are  aware, 
authorized  the  collection  of  such  taxes  by  action.  Comp.  Laws, 
§§    1609-1618,    inclusive.      The    special    method    thus    provided    is 


334  HAXSOX    COUNTY    V.    GRAY.  [cHAP.    V. 

plain,  speed}',  and  adequate.  There  may  be  decisions  which  announce 
a  different  doctrine,  but  the  overwhelming  weight  of  authority  sus- 
tains the  view  that  a  tax  is  not  a  "debt,"  in  the  ordinary  sense  of 
that  word;  that,  when  the  statute  prescribes  no  special  manner  for 
its  collection,  it  may  be  collected  by  an  action  at  law,  but,  when  an 
adequate  method  is  provided  by  statute,  an  action  for  its  collection 
cannot  be  maintained.  Gatling  v.  Commissioners,  93  N.  C.  536; 
Board  of  Ccfm'rs  v.  First  Xat.  Bank  (Kan.  Sup.)  30  Pac.  22; 
Water-supply  Co.  v.  Bell  (Colo.  Sup.)  36  Pac.  1102;  City  of  Cam- 
den V.  Allen,  26  N.  J.  Law,  398;  City  of  Detroit  v.  Jepp,  52  Mich. 
458,  IS  N.  W.  217;  Hibbard  v.  Clark,  56  N.  H.  155;  Eichards  v. 
Commissioners,  40  Xeb.  45,  58  N.  W.  594;  Louisville  Water  Co. 
V.  Com.,  89  Ky.  244,  12  S.  W.  300;  State  v.  Piazza,  Q6  Miss.  426, 
6  South.  316. 

Appellant  cites  the  following  cases  in  support  of  its  contention 
that  the  special  statutorv  method  is  not  exclusive :  McLean  v.  Myers, 
134  N.  Y.  480,  32  N.  E.  63;  People  v.  Seymour,  16  Cal.  332;  City 
of  Davenport  v.  Chicago,  E.  I.  &  P.  E.  Co.,  38  Iowa,  633 ;  City  of 
Dubuque  v.  Illinois  Cent.  E.  Co.,  39  Iowa,  56;  City  of  Burlington 
V.  Burlington  &  M.  E.  E.  Co.,  41  Iowa,  134;  and  Dollar  Sav.  Bank 
V.  U.  S.  19  Wall.  227.  McLean  v.  Myers  does  not  sustain  the  con- 
tention, because  the  New  York  statute  under  discussion  in  that  case, 
as  shown  by  the  opinion,  expressly  provides  that  the  tax  "may  be 
recovered,  with  interest  and  costs,  by  the  receiver  of  taxes  of  said 
city  in  an  action  in  any  court  of  record  in  this  state,"  134  N.  Y. 
484,  32  X.  E.  63.  People  v.  Seymour  is  not  in  point.  In  that  case 
the  court  construed  and  considered  the  constitutionality  of  a  statute 
expressly  authorizing  the  collection  of  taxes  by  action.  Undoubtedly, 
the  legislature  has  power  to  authorize  the  collection  of  taxes  by 
action,  in  addition  to  any  special  method,  but  it  has  not  exercised 
such  power  in  this  state.  In  City  of  Davenport  v.  Chicago,  E.  I. 
&  P.  E.  Co.,  the  question  was  not  properly  before  the  court,  and  it 
expressly  refrained  from  intimating  any  opinion  thereon.  Careful 
examination  of  the  other  Iowa  cases  cited  show  that  only  two  of 
the  four  judges  then  constituting  the  court  concurred  in  the  view 
that  a  tax  is  a  debt  for  which  an  action  at  law  may  be  maintained, 
although  the  statute  provides  a  special  remedy.  It  will  be  observed 
that  Judge  Cole  dissented,  and  Judge  Miller  held  that  the  question 
was  not  properly  before  the  court.  Whatever  may  be  found  in  Dollar 
Sav.  Bank  v.  U.  S.  tending  to  support  appellant's  contention  is 
simply  dicta,  because  the  subject  is  dismissed  with  these  words : 
"But  all  this  is  superfluous,  for  the  act  of  congress  authorizes  suits 
at  law  to  recover  unpaid  taxes.  It  enacts  as  follows :  '  Taxes  may 
be  sued  for  and  recovered  in  the  name  of  the  United  States  in  any 
proper  form  of  action  before  any  circuit  or  district  court  of  the 
United  States,  for  the  district  in  which  the  liability  for  such  taxes 
mav  have  been,  or  may  be,  incurred,  or  where  the  party  from  whom 
such  tax  is  due  may  reside  at  the  time  of  the  commencement  of 
said  action.'"  19  Wall.  240.    Numerous  other  cases  cited  in  digests 


CHAP,     v.]  IMTKl)   STATES    /'.    (   11 A  M  liKKI.l  N.  335 

and  by  text  writers,  as  holding  that  an  action  will  lie  to  recover 
taxes  without  express  statutory  authority,  notwithstanding]:  an  ade- 
quate special  nietliod  of  collection  has  been  provided,  have  been 
examined,  but  not  one  has  been  found  where  the  question  is  directly 
decided  in  favor  of  tliat  view.  Tbe  conclusion  relative  to  the  collec- 
tion of  taxes  by  an  action  at  law,  herein  announced,  was  reached 
by  a  majority  of  this  court  in  Brule  Co.  v.  King,  11  S.  D.  294,  77 
N.  W.  107.  But  as  one  of  the  judges,  without  stating  any  reasons, 
dissented  in  that  case,  it  was  deemed  not  improper  to  again  consider 
the  question,  wbich  has  been  done  with  care  and  the  assistance  of 
able  counsel.  It  should  be  added  that  the  judge  who  dissented  in 
Brule  Co.  v.  King  did  so  on  the  ground  tliat  the  question  now  de- 
cided was  not  involved  therein,  and  without  forming  any  opinion 
in  relation  thereto.     The  order  of  the  court  below  is 

Affirmed. 


UNITED  STATES  v.  CHAMBERLIN. 
Supreme  Court  of  the  United  States.     1911. 

[Reported  219  fZ.  8.  250.] 

Hughes,  J.  The  <juestion  presented  is  whether  an  action  lies 
by  the  United  States  to  recover  the  amount  of  a  stamp  tax  payable 
under  the  War  Revenue  Act  of  1898  upon  the  execution  of  a  convey- 
ance. 

If  the  statute  creates  an  obligation  to  pay  the  t<ix,  and  does  not 
provide  an  exclusive  remedy,  the  action  must  be  regarded  as  well 
brought. 

At  common  law,  customs  duties  were  recoverable  by  the  Crown 
by  an  information  in  debt  or  an  exchequer  information  in  the  nature 
of  a  bill  in  equity  for  discovery  and  account.  These  informations 
rested  upon  the  general  principle  "  that  in  the  given  case  the  common 
law  or  the  statute  creates  a  debt,  charge,  or  duty  in  the  party 
personally  to  pay  the  duties  immediately  upon  the  importation ; 
and  that,  therefore,  the  ordinar}'  remedies  lie  for  this,  as  for  any 
other  acknowledged  debt  due  to  the  crown."  United  States  v. 
Lyman,  1  Mason,  p.  499.  See  also  Comyn's  Digest  (Title  "  Debt," 
A,  9)  ;  Bunbury's  Reports,  *pp.  97,  223,  225,  262. 

Applying  this  principle  it  was  held  in  the  Lyman  case,  supra, 
and  in  Meredith  v.  United  States,  13  Pet.  486,  that  the  Government 
was  entitled  to  maintain  an  action  to  recover  duties  upon  imports 
as  a  personal  indebtedness  of  the  importers.  The  duty  to  pay  wa^s 
there  derived  from  the  language  of  the  act  of  April  27,  1816,  c. 
107  (3  Stat,  p.  310),  that  "there  shall  be  levied,  collected  and 
paid"  the  several  duties  mentioned,  and  in  accordance  with  an 
established  rule  of  interpretation  the  charge  of  the  duty  on  the  goods 
was  taken  to  mean  a  personal  charge  against  the  o\vner.  In  the 
case  last  cited  the  court  by  Mr.  Justice  Story  said   (p.  4!)3)  : 


336  IJXITED   STATES   V.   CHAMBERLIN.  [ciIAP.    V. 

'•  The  first  question  is,  whether  Smith  and  Buchanan  were  ever 
personally  indebted  for  these  duties ;  or,  in  other  words,  whether 
the  importers  of  goods  do,  in  virtue  of  the  importation  thereof, 
become  personally  indebted  to  the  United  States  for  the  duties  due 
thereon ;  or  the  remedy  of  the  United  States  is  exclusively  confined 
to  the  lien  on  the  goods,  and  the  security  of  the  bond  given  for 
the  duties.  It  appears  to  us  clear  upon  principle,  as  well  as  upon 
the  obvious  import  of  the  provisions  of  the  various  acts  of  Congress 
on  this  subject,  that  the  duties  due  upon  all  goods  imported  con- 
stitute a  personal  debt  due  to  the  United  States  from  the  importer 
(and  the  consignee  for  this  purpose  is  treated  as  the  owner  and 
importer),  independently  of  any  lien  on  the  goods,  and  any  bond 
given  for  the  duties.  The  language  of  the  duty  act  of  the  27th  of 
April,  1816,  ch.  107,  under  which  the  present  importations  were 
made,  declares  that  '  there  shall  be  levied,  collected,  and  paid '  the 
several  duties  prescribed  by  the  act  on  goods  imported  into  the 
United  States.  And  this  is  a  common  formulary  in  other  acts  laying 
duties.  Now,  in  the  exposition  of  statutes  laying  duties,  it  has 
been  a  common  rule  of  interpretation  derived  from  the  principles 
of  the  common  law,  that  where  the  duty  is  charged  on  the  goods, 
the  meaning  is  that  it  is  a  personal  charge  on  the  owner  by  reason 

of  the  goods.     So  it  was  held  in  Attorney  General  v.  ,  2 

Anst.  R.  558,  where  a  duty  was  laid  on  wash  in  a  still;  and  it  was 
said  by  the  court  that  where  duties  are  charged  on  any  articles  in 
a  revenue  act,  the  word  '  charged '  means  that  the  owner  shall  be 
debited  with  the  sum;  and  that  this  rule  prevailed  even  when  the 
article  was  actually  lost  or  destroyed  before  it  became  available  to 
the  owner.  Nor  is  there  anything  new  in  this  doctrine;  for  it  has 
long  been  held  that  in  all  such  cases  an  action  of  debt  lies  in  favor 
of  the  government  against  the  importer,  for  the  duties,  whenever 
by  accident,  mistake,  or  fraud,  no  duties,  or  short  duties  have  been 
paid." 

A  similar  rule  has  been  applied  in  the  case  of  internal  revenue 
taxes.  United  States  v.  Washington  Mills,  by  Clifford,  J.,  2  CHff. 
601,  607;  Dollar  Savings  Bank  v.  United  States,  19  Wall.  227; 
United  States  v.  Pacific  Railroad,  by  Miller  and  Dillon,  JJ.,  4  Dill. 
66;  United  States  v.  Tilden,  by  Blatchford,  J.,  9  Ben.  368. 

In  Dollar  Savings  Bank  v.  United  States,  supra,  an  action  of  debt 
was  sustained  to  recover  the  amount  of  the  internal  revenue  tax 
imposed  by  the  act  of  July  13,  1866,  c.  184,  14  Stat.  138,  on  the 
undistributed  gains  carried  to  the  surplus  fund  of  the  bank.  It 
was  objected  that  the  act  provided  a  special  remedy  for  the  assess- 
ment and  collection  of  the  tax  and  that  no  other  could  be  used. 
But  the  court,  finding  no  prohibition  of  the  remedy  by  action,  held 
the  argument  untenable,  saying  (pp.  238-240)  : 

"  It  must  also  be  conceded  to  l)e  a  rule  of  the  common  law  in 
England,  as  it  is  in  Pennsylvania  and  many  of  the  other  States, 
that  where  a  statute  creates  a  right  and  provides  a  particular  remedy 
for  its  enforcement,  the  remedy  is  generally  exclusive  of  all  com- 
mon-law remedies. 


CHAP,     v.]  UNITED   STATES   V.    CJIAMBERLIN.  337 

"But  it  is  important  to  notice  upon  wliat  the  rule  is  founded. 
The  reason  of  the  rule  is  that  the  statute,  by  providing  a  particular 
remedy,  manifests  an  intention  to  prohibit  other  remedies,  and  the 
rule,  therefore,  rests  upon  a  presumed  statutory  prohibition.  It 
applies  and  it  is  enforced  when  any  one  to  whom  the  statute  is  a 
rule  of  conduct  seeks  redress  for  a  civil  wrong.  He  is  confined  to 
the  remedy  pointed  out  in  the  statute,  for  he  is  forbidden  to  make 
use  of  any  other.  But  by  the  Internal  Kevenue  law,  the  United 
States  are  not  })rohibited  from  adopting  any  remedies  for  the  re- 
covery of  a  dt'l)t  (hie  to  them  wbieli  are  known  to  the  laws  of  Pennsyl- 
vania. Tlie  prohibitions,  if  any,  either  express  or  implied,  contained 
in  the  enactment  of  1866,  are  for  others,  not  for  the  government. 
They  may  be  obligatory  upon  tax  collectors.  They  may  prevent 
any  suit  at  law  by  such  officers  or  agents.  But  they  are  not  rules 
for  the  conduct  of  the  State.  It  is  a  familiar  principle  that  the 
King  is  not  bound  by  any  act  of  Parliament  unless  he  be  named 
therein  by  special  and  particular  words.  The  most  general  words 
that  can  be  devised  (for  example,  any  person  or  persons,  bodies 
politic  or  corporate)  affect  not  him  in  the  least,  if  they  may  tend 
to  restrain  or  diminish  any  of  his  rights  and  interests.  He  may 
even  take  the  benefit  of  any  particular  act,  though  not  named.  The 
rule  thus  settled  respecting  the  British  Crown  is  equally  applicable 
to  this  government,  and  it  has  been  applied  frequently  in  the  dif- 
ferent States,  and  practically  in  the  Federal  courts.  It  may  be 
considered  as  settled  that  so  much  of  the  royal  prerogatives  as  be- 
longed to  the  King  in  his  capacity  of  parens  patrice,  or  universal 
trustee,  enters  as  nnich  into  our  political  state  as  it  does  into  the 
principles  of  the  British  constitution. 

"  It  must,  then,  be  concluded  that  the  government  is  not  prohi- 
bited by  anything  contained  in  the  act  of  1866  from  employing 
any  common-law  remedy  for  the  collection  of  its  dues.  The  reason 
of  the  rule  which  denies  to  others  the  use  of  any  other  than  the 
statutory'  remedy  is  wanting,  therefore,  in  applicability  to  the  gov- 
ernment, and  the  rule  itself  must  not  be  extended  bevond  its  reason.'* 
See  also  United  States  v.  Stevenson,  215  U.  S.  p.  197. 

The  statute,  in  the  Savings  Bank  case,  contained  a  provision 
(now  in  §  3213,  Rev.  Stat.)  which  expressly  authorized  the  bringing 
of  an  action.  But  the  court  also  found  a  sufficient  basis  for  its 
judgment  in  the  general  power  of  the  Government  to  collect  by  suit 
taxes  that  are  due,  where  the  statute  imposing  the  tax  does  not  deny 
that  remedy.  This  point  was  presented,  considered  and  decided  in 
the  determination  of  the  cause  and  the  decision  is  none  the  less  au- 
thoritative because  there  was  another  ground  for  the  ultimate  con- 
clusion. Eailroad  Co.  r.  Schutte,  103  U.  S.  p.  143;  Union  Pacific 
Co.  V.  Mason  City  Co.,  199  U.  S.  p.  166. 

Neither  Lane  County  i'.  Oregon,  7  Wall.  71,  nor  Meriwether  v. 
Garrett,  102  U.  S.  472,  relied  upon  by  the  defendants,  involved  the 
question.  In  the  former  case  it  was  held  that  the  acts  of  Congress 
of  1862  and  1863,  making  United  States  notes  a  legal  tender  for 
debts,  had  no  reference  to  taxes  imposed  by  state  authority.     The 


338  UNITED    STATES    ('.    CIIAArBERLIN.  [cHAI'.    V. 

Legal  Tender  Acts  expressly  provided  that  the  notes  sliould  bo  re- 
ceivable for  national  taxes  and  the  context  forbade  the  conclusion 
that  Congress  intended  to  include  state  taxes  under  the  term  "  debts," 
and  there  was  hence  no  conflict  with  the  statute  of  Oregon  which 
required  the  taxes  due  the  State  to  be  collected  in  coin. 

In  Meriwether  r.  Garrett,  supra,  it  was  held  that  taxes  ^evied 
before  the  repeal  of  the  charter  of  a  municipality,  other  than  such 
as  were  levied  in  obedience  to  the  special  requirement  of  contracts 
•entered  into  under  the  authority  of  law,  and  such  as  were  levied 
under  judicial  direction  for  the  payment  of  judgments  recovered 
against  the  city,  could  not  be  collected  through  the  instrumentality 
of  a  court  of  chancery  at  the  instance  of  the  city's  creditors.  Such 
taxes  could  be  collected  only  under  authority  from  the  legislature. 

A  tax  may  or  may  not  be  a  "  debt "  under  a  particular  statute, 
according  to  the  sense  in  which  the  word  is  found  to  be  used.  But 
whether  the  Government  may  recover  a  personal  judgment  for  a 
tax  depends  upon  the  existence  of  the  duty  to  pay,  for  the  enforce- 
ment of  which  another  remedy  has  not  been  made  exclusive.  Whether 
an  action  of  debt  io  maintainable  depends  not  upon  the  question 
who  is  the  plaintiff  or  in  what  manner  the  obligation  was  incurred, 
but  it  lies  whenever  there  is  due  a  sum  either  certain  or  readily 
reduced  to  certainty.    Stockwell  v.  United  States,  13  Wall.  p.  542. 

Here  the  tax  was  a  stamp  ta^,  but  the  language  as  clearly  imports 
the  obligation  to  pay  as  did  that  of  the  statue  before  the  court  in 
the  Meredith  case,  supra.  Section  6  of  the  War  Revenue  Act  of 
1898  provided  that  there  should  be  "  levied,  collected  and  paid " 
in  respect  of  the  instruments  mentioned  "  by  any  person  or  persons, 
or  party  who  shall  make,  sign,  or  issue  the  same,  or  for  whose  use 
or  benefit  the  same  shall  be  made,  signed,  or  issued,  the  several  taxes 
or  sums  of  money  "  set  forth  in  the  schedule  which  followed.  There 
is  nothing  in  the  nature  of  a  stamp  tax  which  per  se  negatives 
either  the  personal  obligation,  otherwise  to  be  derived  from  the 
words  imposing  the  tax,  or  its  collection  by  action.  The  stamp  is 
to  be  affixed  to  the  instrument  "  to  denote  said  tax."  Sections  7, 
13,  14.  Section  25  provided  that  the  Commissioner  of  Internal 
Revenue  should  cause  to  be  prepared  "  for  the  payment  of  the  taxes 
prescribed  in  this  Act  suitable  stamps  denoting  the  tax  on  the  docu- 
ment, article,  or  thing  to  which  the  same  may  be  affixed."  The 
stamp  is  the  evidence,  and  its  purchase  the  convenient  means,  of 
payment.  When  a  statute  says  that  a  person  shall  pay  a  given  tax 
I  it  obviously  imposes  upon  that  person  the  duty  to  pay,  and  this  may 
jbe  enforced  through  the  ordinary  means  adapted  to  the  recovery 
of  a  definite  sum  due,  unless  that  course  is  clearly  prohibited. 
I  The  objection  was  made  in  the  Savings  Bank  case,  supra,  that 
I  the  tax  had  not  been  assessed.  The  court  held,  however,  that  no 
other  assessment  than  that  made  by  the  statute  was  necessary  in 
order  to  determine  the  extent  of  the  bank's  liability.  Following 
this  rule.  Judge  Blatchford  said  in  Ignited  States  v.  Tilden,  9  Ben. 
p.  386,  where  the  action  was  brought  to  recover  unpaid  taxes  on 
income:  "The  extent  of  the  liabilitv  of  the  individual  for  income 


CHAP,     v.]  UNITED    STATES    V.    CUAMBEULIN.  339 

tax  is  defined  by  (lie  statute,  equally  with  the  extent  of  the  liability 
of  the  bank  for  the  tax  on  undistributed  earnings.  In  each  case 
it  is  necessary,  in  an  action  of  debt  for  the  tax,  to  resort  to  sources 
of  information  outside  of  the  statute,  to  acertain  the  amount  on 
which  the  per  centum  of  tax  fixed  by  the  statute  is  to  be  calculated. 
.  .  .  The  diiference  between  the  two  cases,  in  that  respect,  if  there 
be  any,  will  be,  in  every  case,  one  of  degi-ee  merely,  not  of  principle. 
The  statute  in  imjiosing  the  per  centum  of  tax  on  the  income  of 
the  indiviflual,  makes  a  charge  on  him  of  a  sum  which  is  certain 
for  the  ])urposes  of  an  action  of  debt,  because  it  can  be  made  certain 
through  the  action  of  a  judicial  tribunal,  by  following  the  rules 
laid  down  in  the  statute.  That  is  the  principle  of  the  decision  in 
the  case  of  the  bank,  and  it  controls  the  present  case."  See  also 
King  V.  United  States,  99  U.  S.  p.  233 ;  United  States  v.  Eric  Kail- 
way  Co.,  107  U.  S.  p.  2;  United  States  v.  Philadelphia  &  Reading 
Railroad  Co.,  123  U.  S.  p.  114;  and  United  States  v.  Snyder,  149 
U.  S.  ]).  215.  The  statute  now  before  us  fixes  a  tax  of  a  specified 
amount,  according  to  the  consideration  or  value  of  the  lands  conveyed. 

It  is  insisted,  however,  that  the  provision  for  penalties  excludes 
the  idea  of  a  personal  liability.  Thus  it  is  made  a  misdemeanor  to 
sign  or  issue  one  of  the  described  instruments  to  Avliich  a  stamp 
has  not  been  affixed,  punishable  under  §  7  by  a  fine  of  not  more 
than  one  hundred  dollars,  and  not  exceeding  two  hundred  dollars 
under  §  10  in  llic  case  of  a  bill  or  note.  And  under  §  13,  where 
there  is  intent  to  evade  the  law,  the  olfense  is  punished  "  bv  a  fine 
not  exceeding  fifty  dollars,  or  b}^  imprisonment  not  exceeding  six 
months,  or  both,  in  the  discretion  of  the  court."  The  unstamped 
instrument  is  made  inadmissible  in  evidence  (§§  7,  14),  is  not 
allowed  to  be  recorded  (§  15),  and  l)y  the  provision  of  §  13  is  to 
"be  deemed  invalid  and  of  no  effect." 

But  these  penalties  were  provided  in  order  to  induce  the  payment 
of  the  tax,  and  not  as  a  substitute  for  payment.  It  cannot  be  sup- 
posed that  Congress  intended,  by  penalizing  delinquency,  to  deprive 
the  Government  of  any  suitable  means  of  enforcing  the  collection 
of  revenue.  In  large  transactions,  as  in  the  case  at  bar,  the  fine 
Avhich  could  be  imposed  would  be  much  less  than  the  tax,  and 
no  reason  is  suggested  why  the  Government  should  forgo  the 
collection  of  that  which,  under  the  statute,  is  its  due.  Punishment 
by  imprisonment,  under  §  13,  is  imposed  only  where  it  can  be 
shown  that  there  was  an  "intent  to  evade  the  provisions"  of  the 
act,  and  while  this  remedy  is  a])propriate  in  such  a  case,  and  is 
for  the  obvious  purpose  of  discouraging  evasion,  it  is  without  applica- 
tion where,  for  any  other  reason,  the  tax  has  not  been  paid  and 
thereby  the  Government  has  lost  its  revenue.  The  provision  in- 
validating the  instrument  is  likewise  punitive.  The  object  was  not 
primarily  to  deprive  instruments  of  eft'eet,  but  to  insure  the  dis- 
charge of  the  obligation  to  pay;  and  that  obligation  would  still  be 
imdischarged,  even  though,  by  reason  of  the  non-payment,  the  in- 
strument was  deemed  invalid. 

Upon  these  grounds  we  conclude  that  the  Ignited  States  was  en- 


340  STATE  OF  COLOR A1>0  V.     HARBECK.      [cHAP.  V. 

titled  to  maintain  this  action  and  that  the  demurrer  should  have 
been  overruled.    The  judgment  is  therefore 

Reversed. 


STATE   OF  COLORADO   v.  HARBECK. 
Supreme  Court  of  Xew  York.    Appellate  Division.    1919. 

[Reported  189  App.  Div.  865.] 

Action  to  recover  an  inheritance  tax  assessed  by  the  State  of 
Colorado  against  the  estate  of  John  H.  Harbeck,  who  died  domiciled 
in  Colorado.  The  widow  and  executrix,  defendant  in  this  case,  ac- 
quired a  domicil  in  New  York  after  her  husband's  death.^ 

Philbix,  J.  .  .  .  The  defendants  contend  that  this  action  cannot 
be  maintained  because :  First,  all  proceedings  upon  which  this  action 
is  based  were  had  in  the  State  of  Colorado  without  personal  service 
process  upon  the  defendants  and  without  appearance  by  them,  and 
are  a  nullity  in  so  far  as  they  and  this  action  are  concerned  ;2 
second,  there  is  no  authorization  whatever  under  the  laws  of  Colo- 
rado or  Xew  York  for  this  action;  third,  the  alleged  claim  or  cause 
of  action  is  of  such  character  that  our  courts  cannot  entertain  it.  .  .  . 

It  now  becomes  necessary  to  take  up  the  question  as  to  the  plain- 
tiff's right  to  enforce  this  obligation  in  this  State.  It  is  contended 
by  defendants  that  section  17,  18,  and  19  of  the  Colorado  Inheritance 
Tax  Law  of  1913  contain  the  sole  remedy  open  to  the  plaintiff  for 
the  collection  of  the  taxes.  We  have  seen  that  because  of  the  ab- 
sence from  Colorado  of  the  defendants  and  of  any  property  therein 
belonging  to  the  decedent,  no  proceedings  could  be  had  imder  those 
sections.  The  defendants,  although  they  admit  having  received  the 
notice  by  mail  provided  for  in  the  Colorado  statute,  have  not  vol- 
untarily submitted  to  the  jurisdiction  of  that  State  or  permitted 
personal  service  to  be  made  upon  them  therein. 

Section  17,  in  brief,  gives  the  County  Court  jurisdiction  over  the 
property  of  a  decedent  and  taxes  thereon,  and  provides  that  the 
County  Court  first  acquiring  jurisdiction  shall  retain  the  same  "  to 
the  exclusion  of  every  other"  (County  Court).  Section  18  provides 
that,  where  the  tax  has  not  been  paid  the  county  court  shall  issue 
a  summons  requiring  the  person  interested  in  the  property  to  appear 
on  a  day  certain,  not  more  than  three  months  after  the  date  of  the 
summons,  to  show  cause  why  the  tax  should  not  be  paid.  The 
summons  may  be  served  in  every  respect  as  provided  for  a  summons 
in  a  civil  action  in  rem  unless  otherwise  provided  in  the  act.  Section 
19  states  that  after  the  refusal  or  neglect  to  pay  a  tax  within  one 
year  from  the  accrual  thereof,  and  where  no  bond  has  been  given, 
it  shall  be  the  duty  of  the  Attorney-General  to  file  a  petition  under 
section  18  and  press  it  to  a  final  conclusion.  The  Attorney-General 
is  authorized  to  appear  in  behalf  of  the  State  in  any  and  all  inher- 
itance tax  matters  before  any  court  of  record.  Because  of  inability  to 
invoke  the  operation  of  the  foregoing  sections,  the  plaintiff  should 
not  be  deprived  of  all  remedy,  and  compelled  to  abandon  every  effort 

'  This  short  statement  of  facts  is  substituted  for  that  of  the  court. 
*  The  opinion  on  this  point  is  omitted.     The  court  held  the  tax  valid. 


CHAP,     v.]  STATE    OF    COLOR^\DO    V.    IIAKBECK.  341 

to  keep  the  defendants  to  the  obligation  they  assumed  as  above  stated. 
There  is  nothing  to  prevent  a  State,  a  political  corporation,  from 
seeking  in  the  courts  tlie  relief  or  redress  that  any  other  corporation 
may  demand.  Delafield  v.  Illinois,  2  Hill,  LOO.  And  it  is  to  be  noted 
that  section  13,  in  providing  that  the  Attorncv-Cieneral  may  apply 
to  have  a  person  take  out  letters  of  administration,  with  the  will  an- 
nexed, states  as  already  indicated  that  such  provision  shall  not  pre- 
vent the  enforcement  of  the  collection  of  any  tax  in  any  other  manner 
"as  may  be  provided  in  this  act  or  "  hy  law."  And  section  19  says 
that  the  Attorney-Ceneral  shall  be  authorized  to  appear  in  behalf  of 
the  llstate  "  in  any  and  all  inheritance  tax  matters  before  any  court  of 
record."  In  Pinnacle  Co.  v.  People,  58  Colo.  86,  90,  it  was  held 
that  if  a  special  remedy  provided  by  statute  for  the  collection  of 
taxes  is  not  effectual  to  compel  payment  in  spite  of  the  taxpayer's 
determination  not  to  pay,  resort  may  be  had  to  an  action  against  the 
taxpayer. 

The  remedy  sought  by  the  plaintiff  is  not  limited  to  its  courts  and 
adequate  enforcement  can  be  had  in  ours.  Howarth  v.  Angle,  162 
N.  Y.  179;  Shipman  v.  Treadwell,  200  N.  Y.  472.  A  different 
situation  was  presented  in  Marshall  i'.  Sherman,  148  X.  Y.  9. 
There  the  action  was  brought  by  a  creditor  of  a  Kansas  bank  to 
enforce  a  statutory  liability  of  a  stockholder  under  a  statute  of  that 
State.  It  was  held  that  there  was  no  reason  why  the  plaintiff 
should  be  permitted  to  enforce  the  liability  against  a  citizen  of  this 
State  in  a  form  of  action  different  from  that  which  a  creditor  of 
a  domestic  corporation  may  prosecute  against  a  domestic  stock- 
holder. In  the  Ilowarth  Case,  supra,  approved  in  Knickerbocker 
Trust  Co.  V.  Iselin,  185  N.  Y.  54,  59,  it  was  held  that  the  enforce- 
ment of  a  statutory  liability  against  a  resident  stockholder  for  debts 
of  an  insolvent  foreign  corporation  does  not  rest  upon  the  theory 
that  the  laws  of  the  foreign  State  are  in  force  in  this  State,  but 
upon  the  contractual  obligation  the  shareholder  assumes  to  meet  the 
liability  affixed  by  the  statute  to  the  ownership  of  stock.  The  de- 
fendants in  this  case  by  their  conduct  assumed  the  statutory  obliga- 
tion and  thereby  made  it  their  contractual  obligation. 

Public  policy  does  not  prohibit  the  assumption  of  jurisdiction 
by  this  court  and  the  principle  of  comit)^  demands  it.  Loucks  v. 
Standard  Oil  Co.,  224  N.  Y.  90.  The  Inheritance  Tax  Law  of 
Colorado  has  precisely  the  same  design  as  a  similar  law  in  this 
State,  and  may  indeed  be  said  to  be  identical  in  its  general  provi- 
sions and  scope.  It  was  apparently  to  avoid  the  full  force  of  the 
provisions  of  our  own  law  that  the  defendants  placed  the  decedent 
in  the  position  of  a  nonresident  of  this  State.  As  was  said  in  the 
Loucks  Case: 

"  A  foreign  statute  is  not  law  in  this  State,  but  it  gives  rise  to  an 
obligation,  which,  if  transitory,  '  follows  the  person  and  may  be  en- 
forced wherever  the  person  may  be  found.'  .  .  .  '  No  law  can  exist 
as  such  except  the  law  of  the  land ;  but  ...  it  is  a  principle  of 
every  civilized  law  that  vested  rights  shall  be  protected.'  .  .  .  The 
plaintiff  owns  something,  and  we  help  him  to  get  it.  .  .  .  We  do 


342  MCGEE    V.     SALEM.  [ciIAPo     V. 

this  unless  some  sound  reason  of  public  policy  makes  it  unwise  for 
us  to  lend  our  aid."  .  .  . 

Judgment  reversed,  with  costs,  and  judgment  directed  for  plain- 
tiff as  prayed  for  in  the  complaint,  with  costs. 


McGEE  V.  SALEM. 
Supreme  Judicial  Cocet  of  Massachusetts.     1889. 

[Reported  149  Mass.  238.] 

Contract  to  recover  $31.40,  the  amount  of  a  tax  paid  under 
protest.  Trial  in  the  Superior  Court,  wdthout  a  jury,  before  Brig- 
ham.,  C.  J.,  who  allowed  a  bill  of  exceptions,  in  substance  as  follows. 

This  action  was  heard  and  determined  by  the  court,  upon  finding 
the  facts  following.  Prior  to  May  1,  1884,  one  Putnam  was  the 
owner  of  greenhouses  upon  land  owmed  by  one  Emmerton,  on  Crom- 
bie  Street,  in  Salem.  The  assessors  of  the  defendant  city  assessed 
to  Emmerton  taxes  upon  the  land  for  the  year  1884,  and  to  Putnam 
"upon  the  greenhouses  thereon,  as  real  estate,"  as  well  as  upon 
other  land  on  Mason  Street  in  Salem,  the  stock  in  the  greenhouses, 
valued  at  $500,  being  assessed  to  Putnam  as  personal  estate.  The 
entire  tax  assessed  in  1884  to  Putnam  on  his  real  and  personal 
estate  was  the  sum  of  $59.75.  Subsequently,  Putnam  w^as  declared 
to  be  an  insolvent  debtor,  and  in  settling  his  estate  his  assignees  in 
insolvency  sold  the  greenhouses  to  the  plaintiffs,  on  January  1,  1886. 
The  tax  for  the  year  1884  on  the  greenhouses  remaining  unpaid 
in  July,  1886,  the  defendant's  collector  of  taxes  proceeded  to  collect 
it  by  a  sale  of  the  green  houses  as  real  estate,  after  due  notice,  by 
public  auction. 

Before  the  day  appointed  for  the  sale,  the  plaintiffs  duly  paid 
the  tax  to  the  collector,  after  signing  a  protest  in  writing,  but  in 
paying  it  did  not  claim  that  the  tax  had  been  illegally  assessed,  or 
that  the  same  should  be  apportioned,  or  ask  of  the  collector  so  to 
apportion  it  that  they  could  avoid  the  sale  of  the  greenhouses  by 
paying  so  much  of  the  tax  assessed  to  Putnam  on  the  greenhouses 
as  "real  estate"  as  applied  to  them  only,  and  not  to  the  land  on 
which  they  were. 

The  judge  ruled  that  upon  these  facts  the  action  could  not  be 
maintained,  and  found  for  the  defendant;  and  the  plaintiffs  alleged 
exceptions. 

Field,  J.  "We  understand  from  the  exceptions  that  the  tax  on 
the  land  upon  wdiich  the  greenhouses  stood,  was  assessed  to  Emmer- 
ton, and  that  in  this  assessment  the  greenhouses  were  not  included, 
and  that  the  tax  on  the  greenhouses,  considered  apart  from  the  land, 
was  assessed  to  Putnam  as  a  tax  on  real  estate.  This  separation  of 
the  greenhouses  from  the  land  on  which  they  stood  implies  that 
the  assessors  considered  that  the  greenhouses  belonged  to  Putnam 
as  personal  property.    These  taxes  were  assessed  as  of  May  1,  1884. 


ClIAl'.     v.]  MCGEK   V.   SALEM.  343 

I'utiiam,  alter  this  tax  was  assessed  to  him,  became  an  insolvent 
debtor,  and  tlie  assignees  of  his  estate,  on  January  1,  1S86,  sold 
tlie  greenhouses  to  tlie  plaintifVs.  The  phiintilfs,  therefore,  so  far 
as  appears  took  an  absolute  tith'  to  tlie  greenhouses,  unless  there 
was  a  lien  on  them  in  favor  of  the  city  of  Salem  for  the  payment 
of  the  tax  assessed  to  Putnam. 

Tlie  Pub.  Sts.  c.  11,  provide,  in  §  3,  that  "real  estate,  for  the 
purposes  of  taxation,  sliall  include  all  lands  witiiin  this  State,  and 
all  Iniihlings  and  other  things*  erected  on  or  affixed  to  tlie  same"  ; 
in  §  13,  that  "taxes  on  real  estate  shall  be  assessed,  in  the  city  or 
town  where  the  estate  lies,  to  the  person  who  is  either  the  owner 
or  in  possession  thereof  on  the  first  day  of  May  "  ;  in  §  "^^O,  that  ''  all 
personal  estate,  within  or  without  the  Commonwealth,  shall  be 
assessed  to  the  owner  in  the  city  or  town  where  he  is  an  inhabitant 
on  the  first  day  of  May,  except",  etc.;  and  in  §  53  require  that  the 
buildings  and  lots  of  land  be  separately  described. 

In  Milligan  i'.  Drury,  130  Mass.  4*^8,  it  was  in  effect  decided  that 
buildings  attixed  to  land,  under  an  agreement  between  the  owner  of 
the  land  and  the  owner  of  the  buildings  that  they  should  remain 
personal  property,  might  be  assessed  with  the  land  to  the  landowner; 
and  it  was  said  that  "the  assessors  were  not  obliged  to  in(iuine  into 
the  private  contracts  between  the  parties,  but  had  the  right  to  do 
as  they  did,  and  assess  together  as  real  estate  the  land  and  the 
buildings  atHxed  tliereto."  It  follows  from  this  decision,  that  the 
land  and  the  buildings  affixed  thereto  could  be  assessed  together 
as  real  estate  to  the  person  in  possession  of  the  land  and  the  buildings 
on  the  first  day  of  May,  as  well  as  to  the  owner  of  the  land. 

The  question  did  not  arise  in  that  case  whether  a  tax  can  be  as- 
sessed upon  buildings  which  are  personal  pro])erty  as  a  separate 
tax  from  that  assessed  on  the  land  to  which  the  buildings  are  affixed, 
and  the  question  whether,  if  a  tax  can  be  so  assessed,  the  buildings 
should  be  taxed  as  real  or  personal  estate,  was  not  considered.  There 
are  difficulties  whatever  view  is  taken.  If  the  OA\Tier  of  the  buildings 
is  an  inhabitant  of  another  town  within  the  Commonwealth  than 
that  in  wiiich  the  buildings  are  situated,  and  the  buildings  may  be 
assessed  to  him  in  one  town  as  personal  property,  and  also  may  be 
assessed  in  the  other  town  as  a  part  of  tlie  land  to  the  lando\\Tier 
or  person  in  possession  of  the  land,  then  there  may  be  double  taxa- 
tion at  the  election  of  the  assessors  of  the  different  to^^-ns. 

While  the  statutes  expressly  declare  that  for  the  purposes  of  taxa- 
tion real  estate  shall  include  buildings  affixed  to  land,  and  expressly 
provide  for  a  separate  description  and  valuation  of  the  buildings 
and  the  lots  of  land,  yet  the  provisions  relating  to  the  collection  of 
a  tax  on  real  estate  by  a  lion  upon  it  and  a  sale  of  it,  or  of  the  rents 
and  profits,  or  by  the  ])urchase  of  the  real  estate  in  behalf  of  the 
citv  or  town,  or  by  the  taking  of  it  for  the  city  or  town,  as  well  a?  the 
provisions  for  the  redemption  by  the  owner  of  real  estate  so  taken 
or  sold,  are,  in  many  respects,  inapplicable  to  buildings  which  are 
personal  property,  and  which  must  at  some  time  be  removed  from 


344  MCGEE   V.    SALEM.  [ciIAP.    V. 

the  land,  or  taken  down  if  the  owner  of  the  land  requires  it.  Pub. 
Sts.  c.  12,  §§  24-58.  Buildings  affixed  to  land  are  in  their  nature 
real  property,  and  they  are  only  considered  as  personal  property 
between  the  parties  to  an  agreement  making  them  such  and  those 
who  purchase  the  land  with  knowledge  of  the  agreement ;  they  pass 
as  a  part  of  the  land  to  a  purchaser  for  value  without  notice.  Hunt 
v.  Bay  State  Iron  Co.  97  Mass.  279.    Dolliver  v.  Ela,  128  Mass.  557. 

The  questions  we  are  discussing  were  considered  in  Flanders  v. 
Cross,  10  Cush.  514  but  it  was  not  necessary  there  to  decide  them, 
although  it  was  said  that  "there  is  no  power  in  the  collector  to 
divide  the  property,  to  levy  on  the  building  severed  from  the  land, 
as  divisible  parts  of  the  same  piece  of  real  estate."  This  statement 
we  think  is  true.  As  the  statutes  relating  to  a  sale  of  real  property 
to  satisfy  the  lien  for  taxes  do  not  provide  for  a  sale  of  a  building 
apart  from  the  land  on  which  it  stands,  and  as  some  of  the  provi- 
sions are  inconsistent  with  such  a  sale,  we  think  it  follows  that  a 
building  affixed  to  land  cannot  be  taxed  as  real  estate  except  in 
connection  with  the  land  to  which  it  is  affixed.  The  tax  assessed 
to  Putnam  on  these  greenhouses  as  real  estate,  therefore,  was  un- 
authorized, and  it  is  unnecessary  to  consider  whether  they  could 
have  been  taxed  to  him  as  personal  estate. 

It  is  contended  that,  if  these  greenhouses  were  wrongly  included 
in  the  real  estate  of  Putnam  for  the  purpose  of  taxation,  yet,  as 
other  land  in  Salem  was  rightly  taxed  to  him,  Putnam's  remedy 
would  have  been  by  a  petition  for  abatement,  and  not  by  action, 
and  that  the  plaintiffs  have  only  the  rights  and  remedies  which 
Putnam  would  have  had  if  he  had  not  become  an  insolvent  debtor, 
and  had  remained  the  owner  of  the  greenhouses.  Howe  v.  Boston, 
7  Cush.  273,  274. 

It  has  been  decided  that  for  the  collection  of  a  tax  assessed  on 
real  estate  a  city  or  town  has  a  remedy  against  the  person  and  the 
property  generally  of  the  person  to  whom  the  tax  has  been  assessed, 
and  is  not  confined  to  the  sale  of  the  real  estate  itself.  Sherwin  v. 
Boston  Five  Cents  Savings  Bank,  137  Mass.  444.  Richardson  v. 
Boston,  148  Mass.  508. 

It  may  be  conceded  that,  if  Putnam  had  remained  the  owner  of 
the  greenhouses,  the  collector  of  taxes  could  have  taken  them  by 
distress,  under  the  Pub.  Sts.  c.  12,  §§  8,  9,  or  have  maintained 
an  action  of  contract  against  him,  and  attached  them  under  §  20 
of  the  same  chapter,  and  that  therefore  Putnam  could  not  main- 
tain the  present  action  if  he  had  paid  the  tax,  because  unless 
there  is  an  abatement  the  assessment  is  good  as  against  him,  and 
he  is  personally  bound  to  pay  the  tax.  But  the  plaintiffs  by  pur- 
chasing the  greenhouses  did  not  succeed  to  the  personal  obliga- 
tion of  Putnam  to  pay  the  tax.  If  the  tax  was  a  lien  on  the  green- 
houses, the  lien  might  have  been  enforced  even  after  the  plaintiffs 
became  the  owners;  but  if  there  was  no  lien,  the  houses  after  they 
became  the  property  of  the  plaintiffs  could  not  have  been  sold  to. 
pay  a  tax  assessed  to  another  person.  As  we  have  held  that  the 
houses  considered  apart  from  the  land  coitld  not  lawfully  be  assessed 


CHAP,  v.]  KLRK  V.    AT  WOOD.  345 

to  Putnam  as  real  estate,  the  tax  would  not  constitute  a  lien  upon 
the  greenhouses,  although  it  might  remain  a  valid  tax  against  Put- 
nam, because  only  taxes  assessed  on  real  estate  constitute  a  lien. 

As  the  plaintiffs  were  never  per.sonally  liable  to  pay  the  tax,  and 
as  there  was  no  lien  upon  the  greenhouses  whereby  they  could  be 
6old  to  satisfy  it,  the  remaining  question  is  whether  the  plaintiffs 
could  pay  the  amount  of  the  tax  under  protest  to  the  collector  of 
taxes,  who  was  unlawfully  proceeding  to  collect  it  by  a  sale  of  the 
greenhouses,  and  then  bring  an  action  to  recover  what  they  had 
paid.  Tile  wrong  of  the  collector  is  in  tlireatening  to  take  one 
man's  goods  to  pay  a  tax  assessed  to  another.  It  may  be  said  that 
the  payment  was  not  compulsor}',  because  the  collector  held  no  war- 
rant authorizing  him  to  levy  upon  or  to  sell  the  property  of  the 
plaintiff.  If  the  collector  had  intermeddled  with  the  greenhouses 
by  taking  possession,  or  by  delivering  possession  to  another  person, 
the  plaintiffs  could  have  maintained  trespass,  or  trover,  or  replevin. 
Independently  of  statute,  it  may  be  that  this  action  could  not  be 
maintained.  See  Boston  &  Sandwich  Glass  Co.  v.  Boston,  4  Met. 
181;  Forbes  v.  Appleton,  5  Cush.  115;  Barrett  v.  Cambridge,  10 
Allen,  48. 

But  by  the  Pub.  Sts.  c.  12,  §  84,  one  of  the  alternative  conditions 
under  which  a  tax  paid  may  be  recovered  is  that  it  was  paid  by 
the  plaintiff,  after  "  a  protest  by  him  in  writing."  In  the  present 
case,  this  was  done.  We  think  that  the  Legislature  intended  by  this 
provision  that  any  person  upon  whom  a  collector  makes  a  demand 
for  the  payment  of  a  tax  included  in  his  warrant,  on  the  ground  that 
he  is  personally  liable  to  pay  it,  or  whose  property  the  collector 
proceeds  to  sell,  on  the  ground  that  it  is  liable  to  be  taken  to  satisfy 
such  a  tax,  may,  instead  of  resisting  the  collector,  or  resorting  to 
other  remedies,  pay  the  tax  under  written  protest,  and  bring  suit 
to  recover  the  amount  paid.  Such  a  course  is  the  least  troublesome 
of  any  judicial  proceedings  which  can  well  be  taken  to  settle  ques- 
tions which  are  often  of  great  difficulty.  We  think  that,  on  the 
facts  recited  in  the  exceptions,  the  action  can  be  maintained. 

Exceptions  sustained. 


KERR  r.  ATWOOD. 

Supreme  Judicial  Court  of  Massachusetts.     1905. 

[Reported  188  Mass.  506.] 

Hammond,  J.  In  this  action  to  recover  damages  for  an  alleged 
assault  and  false  imprisonment,  the  defendant  pleaded  justification 
under  a  tax  warrant. 

R.  L.  c.  13,  §  26,  under  which  the  arrest  was  made,  is  as  follows: 
"  If  a  person  refuses  or  neglects  to  pay  his  tax  for  fourteen  days 
after  demand  and  the  collector  cannot  find  sufficient  goods  upon 
which  it  may  be  levied,  he  may  take  the  body  of  such  person  and 
commit  him  to  jail  until  he  pays  the  tax  and  charges  of  commitment 
and  imprisonment,  or  is  discharged  according  to  law."     The  main 


346 


KERR    V.    ATWOOD.  [cHAP.    V. 


question  is  whether  there  was  evidence  from  which  the  jury  might 
lind  that  the  defendant  coukl  not  find  sulhcicnt  goods  withm  the 
meaning  of  the  term  as  nsed  in  this  statute. 

The  jury  were  instructed  in  substance  that  it  was  the  duty  of 
the  defendant  to  make  a  diligent  search,  but  that  if  before  the  arrest 
the  defendant  demanded  of  the  plaintiff  that  he  exhibit  goods  for 
the  purpose  of  being  taken  on  the  warrant  and  the  plaintiff,  having 
goods  which  he  could  have  exhibited,  failed  to  exhibit  them,  then 
as  matter  of  law  the  defendant  had  made  diligent  search  and  could 
lawfully  arrest.    We  are  of  opinion  that  this  instruction  was  correct. 

After  the  adoption  of  our   State   Constitution,  the  first  statute 
authorizing  arrest  for  non-payment  of  taxes  was  St.  1785,  c.  70,  §  2. 
It  reads  as  follows :  "  And  if  any  person  assessed  as  aforesaid  to  the 
state  or  other  tax,  shall  refuse  or  neglect  to  pay  the  sum  or  sums  so 
assessed,  by  the  space  of  twelve  days  after  demand  thereof,  and  shall 
neglect  to  show  the  constable  or  collector  sufficient  goods  or  chattels 
whereby  the  same  may  be  levied,  in  every  such  case,  he  may  take  the 
body  of  the  person  so  refusing,  and  him  commit  unto  the  common 
gaol,"  etc.     This  provision  appears  in  Rev.  Sts.  c.  8,  §  11,  in  this 
language:  "If  any  person  shall  refuse  or  neglect,  for  fourteen  days 
after  demand  thereof  made,  to  pay  his  tax,  and  the  collector  cannot 
find  sufficient  goods,  upon  which  it  may  be  levied,  he   may   take 
the  body  of  such  person  and  commit  him  to  prison,"   etc.     And 
through  the  various  codifications  the  language  has  remained  sub- 
stantially the  same.     Gen.  Sts.  c.  12,  §  13.     Pub.  Sts.  c.  12,  §  14. 
St.  1888,  c.  390,  §  18.    R.  L.  c.  13,  §  26.     There  is  nothmg  m  the 
report  of  the  commissioners  on  the  Revised  Statutes  to  show  that 
they  intended  to  make  any  change  in  the  statute,  so  far  at  least  as 
respects  the   effect  of  a  refusal   of  the   delinquent  taxpayer,  when 
requested,  to  exhibit  goods  upon  which  levy  may  be  made ;  and  we 
think  IK)  change  was  made.     So  far  as  respects  the  right  to  arrest, 
the  collector  has  made  reasonable  search  when  he  has  requested  the 
delinquent  to  exhibit  goods  upon  which  levy  may  be  made;  and  if 
the   delinquent   refuses   or  neglects   to  make   such   an   exhibit  the 
collector  may  properly  return  that  he  cannot  find  sufficient  goods. 
It  is  the  duty  of  the  delinquent  to  pay  his  tax  and,  in  default  thereof, 
after  a  certain  time  to  exhibit  to  the  collector  upon  demand  goods 
upon  which  levy  may  he  made.     The  law  does  not  impose  upon  the 
collector  the  idle  task  of  seeking  elsewhere  when  with  warrant  in 
hand  he  has  asked  the  delinquent  to  show  goods  upon  which  to  levy, 
and  the  latter  who  should  know  fails  to  indicate  where  there  may 
be  such  goods.     The   instructions  of  the  presiding  Judge  were  in 
accordance  with  this  view  and  were  correct  and  pertinent  to  the 
case.     The  evidence  amply  warranted  the  finding  that  the  plaintiff 
had  refused  upon  demand  to  exhibit  to  the  defendant  goods  upon 
which  to  levy. 

The  question  whether  the  defendant  had  made  reasonable  search 
even  if  he  had  made  no  specific  demand  upon  the  plaintiff  to  exhibit 
goods  properly  was  left  to  the  jury.  In  the  first  place  the  return 
upon  the  warrant  that  he  had  "made  diligent  search  for  and  was 


CHAP,     v.]  KKKK     V.    ATWOOD.  347 

unable  to  find  goods  and  chattels  of  the  within  named  George  L. 
Kerr  whereof  to  niai<e  distress,"  although  not  conclusive  evidence 
in  this  action,  was  nevertheless  prima  facie  evidence  in  favor  of  the 
defendant.  Lothrop  ;;.  Ide,  113  Gray,  !)3.  Bainard  v.  Graves,  13 
Met.  85.  The  jury  well  may  have  thought  that  in  view  of  the  duty 
of  the  plaintiir  to  do  what  he  could,  his  general  suspicious  attitude 
on  the  question,  his  oft  repeated  statement  of  his  inability  to  pay 
even  the  small  sum  due,  and  the  existence  of  the  mortgage,  the  de- 
fendant was  not  obliged  in  law  to  inquire  about  the  iiouseliold  furni- 
ture in  the  tlwelling  house  of  the  plaintiif,  into  which  against  ins 
will  the  defendant  could  not  enter  for  the  purpose  of  levying,  nor, 
in  view  of  the  character  of  the  mortgage,  to  undertake  to  get  from 
either  of  the  parties  to  the  mortgage  any  information  as  to  whether 
it  Avas  valid  as  to  the  whole  or  any  part  of  the  articles  in  the  store. 
The  jury  well  may  have  tliought  that  the  prima  facie  case  made  out  by 
the  return  stood  notwithstanding  the  other  evidence.  In  Hall  v. 
Hall,  3  Allen,  5,  cited  by  the  plaintiff,  it  did  not  appear  from  the 
return  upon  the  warrant  that  the  defendant  made  any  search  what- 
ever. The  case  upon  this  branch  of  it  was  submitted  to  the  jury 
upon  proper  instructions,  and  the  jury  were  warranted  in  finding 
that  the  defendant  had  made  diligent  search  and  could  not  find 
suflficient  goods  upon  which  to  levy,  and  therefore  had  authority  to 
make  the  arrest.  For  cases  bearing  somewhat  upon  the  questions 
here  discussed,  see  in  addition  to  those  above  cited,  Parker  v.  Abbott, 
130  Mass.  25;  Baylev,  petitioner,  138  ^Mass.  457;  Flint  r.  Whitnev, 
28  Vt.  680. 

The  questions  wliether  there  was  unnecessary  or  improper  delay 
in  proceeding  to  the  jail  at  East  Cambridge,  or  whether  the  plaintiff 
was  subjected  to  imi)r()per  treatment  Avere  also  for  the  jury,  and 
we  see  no  error  in  the  instructions  on  that  point.  The  jury  properly 
might  find  that  the  delay  was  at  the  request  of  the  plaintiff,  or 
that  in  any  event  it  was  not  unreasonable,  and  that  neither  in  being 
placed  in  the  cell  of  the  police  station  nor  in  any  other  respect  was 
he  treated  improperly.  We  see  no  error  in  the  manner  in  which 
the  court  dealt  with  the  requests  of  the  plaintiff  on  this  point. 

The  evidence  as  to  whether  the  plaintiff  ever  had  told  the  defend- 
ant tliat  he  had  in  his  house  a  piano  or  other  propcrt}^  or  ever 
offered  or  pointed  out  to  the  defendant  any  specific  articles  in  his 
store,  or  whether  he  was  the  George  L.  Kerr  who  gave  tlie  mortgage 
and  that  he  never  told  the  defendant  about  the  mortgage,  was  ad- 
mitted properly,  and  so  was  the  copy  of  the  mortgage.  The  evidence 
had  a  bearing  upon  the  question  of  reasonable  search. 

The  questions  put  to  the  plaintiff  as  to  his  ability  to  pay  the  tax 
if  he  had  not  paid  other  bills  did  not  exceed  the  latitude  fairly 
allowed  in  cross-examination,  and  we  do  not  see  how  tlie  plaintiff 
could  have  been  prejudiced  by  it. 

We  regard  the  statement  liy  the  judge  in  the  charge  that  taxes 
should  bo  paid  before  private  debts  as  simply  introductory  to  what 
followed,  and  in  any  event  it  could  work  no  harm  to  the  plaintiff. 

The  evidence  that  there  was  no  other  place  of  detention  in  Maiden 


348  SINGER    SEWING    MACHINE    CO.    V.    BENEDICT.        [ciIAP.    VI. 

except  the  police  station  was  admissible  upon  the  question  whether 
the  plaintiff  was  properly  treated,  and  it  was  admitted  rightly. 

Exceptions  overruled. 


CHAPTER   VI. 

REMEDIES   FOR   ILLEGAL   TAXATION. 

SINGER  SEWING  MACHINE  COMPANY  v.  BENEDICT. 
Supreme  Court  of  the  United  States.     1913. 

[Reported  229  U.  8.  481.] 

Van  Devanter,  J.  This  is  a  suit  by  the  Singer  Company,  a 
New  Jersey  corporation,  to  enjoin  the  collection  of  taxes  levied  by 
the  city  and  county  of  Denver,  in  the  State  of  Colorado.  The  com- 
pany made  a  return  of  taxable  personal  property  at  a  valuation  of 
$3,800,  to  which  the  assessor  added  other  personalty  at  a  valuation  of 
$62,500,  making  a  total  assessment  of  $66,300,  which  was  afterwards 
embodied  in  a  tax  list  delivered  to  the  treasurer  for  collection.  The 
company  tendered  payment  of  $126.50,  the  amount  of  taxes  due 
on  the  property  returned  by  it,  and  refused  to  pay  the  amount 
attributable  to  the  additional  assessment.  The  treasurer  declined 
to  accept  the  tender,  and  was  threatening  to  enforce  the  entire  tax, 
when  the  suit  was  brought.  The  bill  charged  that  the  assessor, 
although  required  by  law  to  give  the  company  timely  notice  of 
the  additional  assessment,  had  failed  to  give  it  any  notice,  and  that 
it  was  thereby  prevented  from  presenting  objections  to  the  increase 
and  obtaining  a  hearing  and  ruling  thereon  by  the  assessor  and  by 
the  proper  reviewing  authority  to  which  it  was  entitled  by  the 
local  law.  There  were  also  allegations  to  the  effect  that  the  com- 
pany had  no  property  within  the  city  and  county  other  than 
that  returned  by  it;  that  the  additional  assessment  and  the  taxes 
levied  thereon  were  illegal  because  of  the  assessor's  failure  to  give 
the  required  notice;  and  that  to  enforce  the  collection  of  such  taxes 
would  be  violative  of  designated  provisions  of  the  Constitution  of 
the  United  States.  The  defendants  demurred  on  the  ground  thati 
the  bill  did  not  state  a  case  for  equitable  relief,  but  the  demurrer 
was  overruled.  The  defendants  then  answered  repeating  the  objec- 
tion made  in  the  demurrer  and  interposing  other  defenses  which 
need  not  be  noticed  now.  Upon  the  hearing  a  decree  was  entered 
dismissing  the  bill,  and  the  company  appealed  to  the  Circuit  Court 
of  Appeals.  That  court  held  that  there  was  an  adequate  remedy  at 
law,  and  affirmed  the  decree.  179  Fed.  Kep.  628.  The  company 
then  took  the  present  appeal. 


ClfAP.    VI.]        SINGEK    SKWINO    MACHINE    CO.    V.    BENEDICT,  349 

In  the  courts  of  the  United  States  it  is  a  guiding  rule  that  a 
bill  in  equity  does  not  lie  in  any  case  where  a  plain,  adequate  and 
complete  remedy  may  he  had  at  law.  The  statute  so  declares,  Kev. 
Stat.,  §  '723,  and  the  decisions  enforcing  it  are  without  numher.  If 
it  be  quite  obvious  that  tliere  is  such  a  remedy,  it  is  the  duty  of 
the  court  to  interpose  the  objection  sua  sponte,  and  in  other  cases 
it  is  treated  as  waived  if  not  presented  by  the  defendant  in  limine. 
Keynes  v.  Dumont,  130  U.  S.  354,  395 ;  Allen  v.  Pullman's  Palace 
Car  Co.,  139  U.  S.  G58.  There  was  no  waiver  here.  The  objection 
was  made  by  the  demurrer  and  again  by  the  answer,  and  so,  if  it 
was  well  grounded,  it  was  as  available  to  the  defendants  in  the  Cir- 
cuit Court  of  Appeals  to  prevent  a  decree  against  them  there  as  it 
was  in  the  Circuit  Court.  Boise  Artesian  Water  Co.  i'.  Boise  City, 
213  U.  S.  276. 

In  the  last  case  it  was  said  of  the  pertinency  of  the  guiding  rule 
in  cases  such  as  this  (p.  281)  :  "A  notable  application  of  the  rule 
in  the  courts  of  the  United  States  has  been  to  cases  where  a  demand 
has  been  made  to  enjoin  the  collection  of  taxes  or  other  impositions 
made  by  state  authority,  upon  the  ground  that  they  are  illegal  or 
unconstitutional.  The  decisions  of  the  state  courts  in  cases  of  this 
kind  are  in  conflict,  and  we  need  not  examine  them.  It  is  a  mere 
matter  of  choice  of  convenient  remedy  for  a  State  to  permit  its 
courts  to  enjoin  the  collection  of  a  state  tax,  because  it  is  illegal 
or  unconstitutional.  Very  different  considerations  arise  where 
courts  of  a  different,  though  paramount,  sovereignty  interpose  in 
the  same  manner  and  for  the  same  reasons.  An  examination  of  the 
decisions  of  this  court  shows  that  a  proper  reluctance  to  interfere 
by  prevention  with  the  fiscal  o])erations  of  the  state  governments  has 
caused  it  to  refrain  from  so  doing  in  all  cases  where  the  Federal 
rights  of  the  persons  could  otherwise  be  preserved  unimpaired.  It 
has  been  held  uniformly  that  the  illegality  or  unconstitutionality 
of  a  state  or  municipal  tax  or  imposition  is  not  of  itself  a  ground 
for  equitable  relief  in  the  courts  of  the  United  States.  In  such  a 
case  the  aggrieved  party  is  left  to  his  remedy  at  law,  when  that 
remedy  is  as  complete,  practicable  and  efficient  as  the  remedy  in 
equity." 

A  statute  of  Colorado  enacted  in  1870  (Laws  1870,  p.  123,  J  106) 
and  embodied  in  subsequent  revenue  acts  (2  Mills'  Ann,  Stat.,  § 
3777;  Laws  1902,  c.  3,  pp.  43,  146,  §  202  ;  Rev.  Stat.  1908,  §  5750) 
declares  that  "in  all  cases  where  any  person  shall  pay  any  tax,  in- 
terest or  cost,  or  any  portion  thereof,  that  shall  thereafter  be  found 
to  be  erroneous  or  illegal,  whether  the  same  be  owing  to  erroneous 
assessment,  to  improper  or  irregular  levying  of  the  tax,  to  clerical 
or  other  errors  or  irregularities,  the  board  of  county  commissioners 
shall  refund  the  same  without  abatement  or  discount  to  the  tax- 
payer." This  statute  imposes  upon  the  county  commissioners  the 
duty  of  refunding,  without  abatement  or  discount,  taxes  which 
have  been  paid  and  are  found  to  be  illegal,  and  confers  upon  the 
taxpaver  a  correlative  riglit  to  enforce  that  duty  by  an  action 
at  law.     As  long  ago  as  1879  the  Supreme  Court  of  the  State,  in 


350  SIXGER    SEWI^^G    MACHINE    CO.    V.    BENEDICT.        [ciIAP.    VI. 

holding  that  the  invalidity  of  a  tax  afforded  no  ground  for  enjoin- 
ing its  enforcement,  said  of  this  statute:  "Against  an  illegal  tax 
complainant  has  a  full  and  adequate  remedy  at  law,  and  we  see  no 
reason  why  in  this  case  he  should  not  be  remitted  to  that  remedy." 
Price  r.  Kramer,  -1  Colorado,  546,  555.  And  again :  "  The  statute 
furnishes  another  remedy  in  such  cases  which  is  complete  and  ade- 
quate." Woodward  v.  Ellsworth,  Id.  580,  581.  And  that  this  view 
of  the  statute  still  prevails  is  shown  in  llallett  v.  Arapahoe  County, 
40  Colorado,  308,  318,  decided  in  1907,  where,  in  refusing  equitable 
relief  against  the  collection  of  taxes  alleged  to  be  illegal,  the  court 
said  (p.  318):  "By  §  37:7,  2  Mills'  Ann.  Stat.,  it  is  provided 
that  taxes  paid  which  shall  thereafter  be  found  to  be  erroneous  or 
illegal,  shall  be  refunded,  without  abatement  or  discount,  to  the 
taxpayer.  No  statement  appears  in  either  of  the  complaints  from 
which  it  can  be  deduced  that  the  remedy  afforded  the  plaintiff  by 
this  section  is  not  adequate." 

We  refer  to  these  cases,  not  as  defining  the  Jurisdiction  in  equity 
of  the  Circuit  Court,  for  that  they  could  not  do  (Payne  v.  Hook, 
7  Wall.  425,  430 ;  Whitehead  v.  Shattuck,  138  U.  S.  146 ;  Smythe  v. 
Ames,  169  U.  S.  466,  516),  but  as  showing  that  the  Colorado 
etatute  gave  to  one  who  should  pay  illegal  taxes  a  right  to  recover 
back  from  the  county  the  money  so  paid.  This  right  was  one  which 
could  be  enforced  by  an  action  at  law  in  the  Circuit  Court,  no  less 
than  in  the  state  courts,  if  the  elements  of  Federal  jurisdiction, 
such  as  diverse  citizenship  and  the  requisite  amount  in  controversy, 
were  present.  Ex  parte  McNiel,  13  Wall.  236,  243 ;  United  States 
Mining  Co.  v.  Lawson,  134  Fed.  Eep.  769,  771.  Thus  it  will  be 
perceived  that,  if  the  taxes  in  question  were  illegal  and  void,  as 
asserted,  the  company  had  a  remedy  at  law.  It  could  pay  them 
and,  if  the  commissioners  refused  to  refund,  haA'e  its  action  against 
the  county  to  recover  back  the  money.  Such  a  remedy,  as  this  court 
often  has  held,  is  plain,  adequate  and  complete  in  the  sense  of  the 
guiding  rule  before  named,  unless  there  be  special  circumstances 
shoAA-ing  the  contrary,  Dows  v.  Chicago,  11  Wall.  108,  112;  State 
Railroad  Tax  Cases,  92  U.  S.  575,  613-614;  Shelton  v.  Piatt,  139 
U.  S.  591,  597;  Allen  v.  Pullman's  Palace  Car  Co.,  Id.  658,  661; 
Indiana  Manufacturing  Co.  v.  Koehne,  188  U.  S.  681,  686. 

But  it  is  said  that  in  an  action  to  recover  back  the  money  the  tax 
list  would  be  treated  as  the  judgment  of  a  special  tribunal  conclu- 
sively determining  all  questions  in  favor  of  the  validity  of  the  tax. 
It  well  may  be  that,  if  the  list  were  regular  on  its  face,  it  would  be 
presumptive  evidence  that  the  tax  was  valid,  but  we  find  nothing 
in  the  .statutes  of  Colorado  or  in  the  decisions  of  its  Supreme  Court 
which  goes  to  the  length  suggested.  The  plain  implication  of  the 
section  providing  for  repayment  is  othenvnsc.  Another  section  (Rev. 
Stat.,  §  5677)  declares  that  the  tax  list  "  shall  be  prima  facie  evidence 
that  the  amount  claimed  is  due  and  unpaid,"  and  the  only  decision 
cited  by  the  company  speaks  of  the  assessment  as  being pre^^umptively 
right  "  in  the  absence  of  any  evidence  to  the  contrary."  Singer 
Manufacturing  Co.  v.  Denver,  46  Colorado,  50. 


<nAI'.    VI.]  KNIGHT    V.    THOMAS.  35 1 

It  also  is  said  tliat  there  were  special  circumstances  calling  for 
equitable  relief,  in  that  the  act  of  the  assessor  in  making  the  addi- 
tional assessment  without  giving  any  notice  of  it  wiis  necessarily 
a  fraud,  an  accident,  or  a  mistake.  No  such  claim  was  made  in 
the  bill,  and  even  had  it  been  it  would  be  unavailing  unless  founded 
upon  something  more  than  the  ciiarge  that  no  notice  was  given  and 
that  the  company  had  no  property  within  the  city  and  county  other 
than  that  returned  by  it.  We  say  this  because  the  fraud,  accident 
or  mistake  wliich  will  justify  equitable  relief  must  be  something 
more  than  what  is  fairly  covered  by  the  charge  here  made,  for 
othenvise  tlie  well  settled  rule  that  mere  illegality  in  a  tax  affords 
no  ground  for  such  relief  would  be  a  myth.  There  really  would  be 
no  case  in  wiiich  the  illegality  could  not  be  said  with  equal  propriety 
to  be  the  result  of  fraud,  accident  or  mistake,  for  it  always  arises 
out  of  some  deviation  from  law  or  duty. 

Concluding,  as  we  do,  that  the  company  had  a  [)lain,  adecjuate  and 
complete  remedy  at  law,  the  decree  dismissing  the  bill  is 

Affirmed. 


KXIGHT  V.  THOMAS. 
Supreme  Judicial  Court  of  Maine.     1900. 

[Reported  93  Me.  404.] 
Haskell,  J.  Petition  for  mandamus  by  several  taxpayers  of  a 
town  to  compel  the  assessors  to  assess  certain  real  estate  in  the  town 
at  a  just  and  fair  valuation,  that  had  previously  been  undervalued, 
and  to  assess  certain  other  real  estjite  that  had  therefore  been  omitted 
from  taxation. 

I.  It  is  objected  that  tlie  writ  cannot  issue  at  the  instance  of  the 
petitioners,  who  are  indivuluals. 

It  is  settled  law,  in  this  state,  that  the  writ  can  only  issue  at  the 
instance  of  public  officers,  to  subserve  a  public  right.  Sanger  v. 
County  Commissioners,  25  Maine,  291;  Mitchell  v.  Boardman,  79 
Maine,  469 ;  Weeks  v.  Smith,  81  Maine,  538.  But,  as  stated  in  the 
last  named  case,  an  individual  may  move  for  the  writ  "  when  his 
personal  rights  have  been  invaded  beyond  those  rights  that  he 
enjoys  as  a  part  of  the  public  and  that  are  common  to  every  one." 

The  public  consists  of  the  entire  community,  persons  who  pay 
taxes  and  persons  who  do  not.  Their  interest  is  the  raising  of  rev- 
enue by  taxation  or  othenvise  to  provide  for  the  expenses  of  govern- 
ment, public  works,  public  institutions  and  public  charges.  The 
individual  taxpayer's  interest  is  in  common  with  all  these,  but  he 
has  another  interest  peculiar  to  himself,  that  taxes  shall  be  assessed 
equally,  so  that  his  burden  shall  not  be  greater  than  equality  of 
taxation  shall  impose.  His  personal  interest,  therefore,  by  the  omit- 
ting of  property  from  taxation  in  his  own.  town  would  be  invaded 
thereby  beyond  that  enjoyed  in  common  with  the  public,  and  he 
may  well  be  allowed  to  move  for  the  writ  in  protection  of  it. 


352  LOEWENTHAL    V.    PEOPLE.  [cHAP.    VI. 

II.  It  is  objected  that  the  writ  will  not  lie  to  command  assessors, 
who  intend  to  assess  a  certain  parcel  of  land,  to  assess  the  same 
at  its  jnst  and  fair  value.  Their  oath  requires  them  to  do  that, 
and  mandamus  could  not  require  more.  It  may  require  them  to 
assess,  but  the  assessment  is  matter  of  judgment,  and  it  must  be 
their  owm  judgment,  honestly  given  of  course.  Any  other  assessment 
would  be  corrupt,  and  the  remedy  for  that  must  be  elsewhere.  Other- 
wise, mandamus  would  simply  work  an  appeal  from  the  appraisal 
of  property  made  by  the  assessors,  which  is  not  at  all  the  proper 
function  of  the  writ.  To  have  all  the  property  assessed  is  a  private 
right;  to  have  the  assessment  according  to  law  is  a  public  right. 
The  assessors  are  public  officers,  sworn  to  a  faithful  discharge  of 
their  duty.  The  individual  has  a  right  to  have  them  act.  The 
public  has  the  right  to  their  official  action,  honestly  performed  under 
their  oath,  and  with  this  the  individual  must  be  content,  unless  the 
legislature  shall  provide  a  remedy.  The  legislature  has  already 
provided  such  remedy  as  it  thought  wase  by  E.  S.,  c.  77,  §  6,  where 
jurisdiction  is  conferred  upon  this  court  to  hear  and  determine  all 
complaints  relating  to  any  unauthorized  votes  to  raise  money  by 
taxation,  or  to  exempt  property  therefrom. 

III.  As  to  the  land  not  assessed,  the  petitioner  might  have  had 
the  writ  if  the  court  below,  in  its  discretion,  had  seen  fit  to  award 
it,  for  the  writ  is  a  prerogative  to  be  withheld  or  granted  in  the 
exercise  of  discretion.  It  is  not  a  writ  of  right.  Morsell  v.  First 
Natl.  Bank  of  Washington,  91  U.  S.  357.  Nor  can  it  now  be  issued 
to  any  effective  purpose.  The  assessment  must  have  long  since  been 
made.  To  issue  it  would  be  an  idle  ceremony.  Mitchell  v.  Board- 
man,  79  Maine,  471.  The  petitioner  is  not  aggrieved  by  the  ruling 
below. 

Exceptions  overruled.     Petitio7i  dismissed. 


LOEWENTHAL  v.  PEOPLE. 
SuPEEME  Court  of  Illixois.     1901. 

[Reported   192  III.  222.] 

BoGGS,  J.  This  was  an  application  by  the  appellee  county  collector 
of  Cook  county,  to  the  county  court  of  said  county,  for  a  judgment 
and  order  of  sale  against  lands  and  lots  delinquent  for  the  taxes 
le\ded  thereon  for  the  year  1899.  The  delinquent  list  contained 
four  lots  in  the  city  of  Chicago  of  which  the  appellant  was  the  owner. 
The  appellant  appeared  and  filed  objections  to  the  rendition  of 
judgment  against  each  and  all  of  the  said  lots.  The  objections 
were  heard  upon  a  stipulation  setting  forth  the  testimony  of  the 
witnesses,  and  also  certain  facts;  were  overruled,  and  an  order  and 
judgment  for  the  sale  of  the  lots  granted  as  prayed  by  the  collector. 
This  is  an  appeal  to  reverse  the  judgment  and  order  of  sale. 

It  appeared  from  the  stipulation  the  appellant  was  the  owmer  of 
the  lots  on  the  first  day  of  April,  1899 ;  that  their  total  fair  cash 
value  did  not  then  exceed  the  sum  of  $1 53,000 ;  that  the  valuation 


CIIAI' 


VI.]  LOEWENTIIAL    l".     PEOPLE.  353 


of  the  lots  *a8  returned  by  the  board  of  assessors  to  the  board  of 
review  was  $206,575;  that  George  C.  Fry,  a  duly  authorized  agent 
of  the  appellant,  "  at  various  times  called  at  the  office  of  the  assessors 
for  the  purpose  of  ascertaining  the  value  at  which  said  property 
had  been  assessed;  that  as  soon  as  he  wa.s  able  to  learn  from  said 
board  of  assessors  the  valuation  fixed  by  said  board  of  assessors, 
said  Fry  called  at  the  office  of  the  board  of  review  and  filed  a  com- 
plaint, in  writing,  objecting  to  the  amount  at  which  said  property 
had  been  assessed;  that  said  complaint  was  filed  during  the  latter 
part  of  August,  18*J'J,  and  not  on  or  before  the  first  Monday  in 
August,  but  that  said  conijdaint  was  filed  as  soon  as  said  Fry,  rep- 
resenting tlie  owner  of  saicl  property,  and  as  soon  as  B.  Loewenthal, 
the  owner  of  said  property,  could  learn  the  amount  at  which  said 
property  had  been  assessed,  and  that  the  reason  the  said  written 
complaint  was  not  filed  with  the  board  of  review  on  or  before  the 
first  Monday  in  August,  was  because  it  was  impossible,  on  or  before 
the  first  day  of  August,  to  learn  the  value  at  which  said  property 
had  been  assessed ;  that  when  he  went  to  the  office  of  said  board 
of  review  to  make  said  complaint  he  was  unable  to  see  any  member 
of  the  board  of  review  in  person,  but  was  referred  to  a  clerk  standing 
at  a  desk  in  the  front  part  of  the  office ;  that  when  he  handed  the 
complaint  to  said  clerk,  said  clerk  informed  said  Fry  that  the  said 
objection  would  be  called  up  before  the  board  of  review  in  its  due 
course  and  would  be  considered  by  the  board  of  review,  and  that  he, 
Fry,  as  agent  of  said  objector,  Avould  receive  due  notice  by  mail 
when  such  objection  would  be  taken  up  for  hearing  by  said  board 
of  review;  that  he  did  not,  nor  did  the  said  B.  Loewenthal,  nor 
any  person  acting  on  his  behalf,  receive  any  notice  of  any  hearing 
of  said  objection  before  said  board  of  review,  but  that  said  Fry  on 
several  subsequent  occasions  called  at  the  office  of  said  board  of 
review  and  inquired  of  the  clerks  placed  in  charge  of  said  office 
by  said  board  of  review  as  to  when  said  objection  would  come  up 
for  hearing,  and  was  each  time  informed  that  said  objection  had 
not  yet  been  reached  in  its  order  but  it  would  be  taken  up  in  due 
course,  and  that  prior  to  said  hearing  said  Fry  and  the  said  objector 
would  receive  notice  in  writing  of  the  time  of  said  hearing;  that 
the  said  Fry  and  the  said  B.  Loewenthal  depended  upon  the  state- 
ments made  by  said  clerk  in  the  office  of  the  board  of  review  and 
expected  such  notice  of  a  hearing  upon  said  objections,  but  that 
no  such  notice  was  ever  received  by  said  Fry  or  by  said  Loewenthal, 
and  while  said  Fry  and  said  Loewenthal  were  still  waiting  in  expecta- 
tion of  receiving  notice  of  such  hearing,  the  tax  books  were  closed 
and  delivered  by  the  board  of  review  to  the  county  clerk ;  that  no 
hearing  was  ever  given  by  said  board  of  review  upon  the  objections 
filed  against  the  assessment  on  said  property,  so  far  as  is  known 
to  the  said  Loewenthal  or  said  Fry,  or  any  person  for  said  Loewen- 
thal or  said  Fry." 

The  statute  secures  to  every  person  whose  property  is  assessed 
for  taxes  the  right  to  a  hearing  before  the  board  of  review  on  a 
complaint  in  writing  that  the  property  has  been  assessed  too  high. 


354  LOEWEXTIIAL    r.    PEOPLE.  [cHAP.    VI. 

The  board  are  required  to  review  the  assessment  upon  such  complaint 
and  correct  the  same  as  shall  appear  to  be  just.  This  provision 
is  of  vital  importance  to  the  tax-payer,  and  it  is  against  every 
principle  of  right  and  justice  that  he  should  be  deprived  of  all  op- 
portunity to  contest  the  fairness  of  the  assessment.  The  constitu- 
tion authorized  the  General  Assembly  to  provide  such  revenue  as 
shall  be  needful  by  levying  a  tax  by  valuation,  so  that  every  person 
and  corporation  shall  pay  a  tax  in  proportion  to  the  value  of  his 
or  her  property,  and  the  provisions  of  the  statute  are  designed 
to  accomplish  that  purpose.  The  requirement  of  the  statute  for  a 
hearing  of  the  complaint  is  mandatory,  and  no  person  ought  to  be 
required  to  pay  a  tax  without  a  compliance  with  the  law  which 
entitles  him  to  such  hearing. 

S-K'tion  \  of  article  9  of  the  constitutiim  of  1870,  except  so  much 
thereof  as  relates  to  the  imposition  of  taxes  upon  certain  specified 
occupations,  is  as  follows:  "The  General  Assembly  shall  provide 
such  revenue  as  may  be  needful  by  levying  a  tax,  by  valuation,  so 
that  every  person  and  corporation  shall  pay  a  tax  in  proportion  to 
the  value  of  his,  her  or  its  property  —  such  valuation  to  be  ascer- 
tained by  some  person  or  persons,  to  be  elected  or  appointed  in  such 
manner  as  the  General  Assembly  shall  direct,  and  not  otherwise." 

In  obedience  to  this  constitutional  requirement  that  the  value 
of  property  assessable  for  taxation  shall  be  ascertained  by  some 
person  or  persons  elected  or  appointed  in  such  manner  as  the  Gen- 
eral Assembly  shall  elect  for  that  purpose,  and  not  by  other  persons 
or  other  manner,  the  General  Assembly,  by  an  act  entitled  "An 
act  for  the  assessment  of  property,"  etc.,  approved  February  25, 
1898,  (Kurd's  Stat.  1899,  p.  1444,)  provided  that  the  value  of 
real  property  situate  in  Cook  county,  as  is  the  property  in  ques- 
tion, should  be  ascertained  by  a  board  of  assessors,  consisting  of 
five  persons,  to  be  elected  in  the  manner  as  prescribed  in  section 
3  of  the  act.  The  act  further  provided  the  board  of  assessors  shall 
have  authority  to  designate  and  appoint  deputy  assessors  to  perform 
such  duties  connected  with  the  assessment  of  property  as  may  be 
assigned  to  them.  Section  32  of  the  act  authorizes  the  selection 
of  three  persons,  by  election,  to  constitute  a  board  of  review,  and 
section  35  empowers  the  persons  composing  such  board  of  review, 
among  other  duties,  on  complaint  that  any  property  has  been  assessed 
too  high  by  the  board  of  assessors,  to  ascertain  the  true  assessable 
value  of  such  property  and  approve  or  correct  the  assessment  of  such 
property  as  made  by  the  board  of  assessors. 

Under  the  said  provision  of  the  constitution  hereinbefore  referred 
to,  and  of  the  said  act  of  February  25,  1898,  made  in  pursuance 
thereof,  the  valuation  of  property  for  the  purposes  of  taxation  in  said 
city  of  Chicago  and  county  of  Cook  is  committed  to  the  persons  com- 
posing said  board  of  assessors,  in  the  first  instance,  and  the  persons 
composing  the  board  of  review,  when  sitting  in  review  of  the  action 
of  said  board  of  assessors.  The  power  does  not  reside  in  the  courts 
to  revise  the  assessments  made  by  these  bodies,  on  the  ground,  alone, 
they  fell  into  an  error  of  judgment  in  estimating  the  value  of  the 


CIIAI' 


VT.]  LOKWKNTHAL     V.     I'EOPI.E.  355 


property.  This  principle  was  declared  in  People  ex  rei.  v.  Lot3 
in  Ashley,  15^2  111.  2d7,  and  many  decisions  of  this  court  declaring 
or  illustratin<i;  it  are  there  collected.  In  later  cases,  notably  Keokuk 
Bridge  Co.  ?;.  People,  145  111.  5!J0,  Spring  Valley  Coal  Co.  v.  People, 
157  id.  543,  Clement  v.  People,  177  id.  144,  and  Keokuk  Bridge 
Co.  V.  People,  161  id.  514,  the  doctrine  has  been  re-aflirmed.  In 
Clement  v.  People,  supra,  we  said :  "•  We  have  repeatedly  held  that 
the  courts  have  no  power  to  revise  an  assessment  merely  because 
of  a  difference  of  opinion  as  to  the  reasonableness  of  the  valuation 
placed  upon  the  proi)erty.  On  an  application  for  judgment  against 
lands  for  delinquent  taxes  it  may  be  objected  tliat  the  tax  is  not 
authorized  by  law,  or  is  assessed  uj^on  property  not  subject  to  taxa- 
tion, or  that  the  property  has  been  fraudulently  assessed  at  too 
high  a  rate." 

The  contention,  here,  on  the  part  of  the  appellaTit  is,  the  county 
court  of  Cook  county  became  vested  with  authority  and  jurisdiction 
to  ascertain  the  true  valuation  of  his  property  for  the  purposes  of 
taxation,  for  the  reason  that  the  board  of  review  had  failed  or  refused 
to  review  the  assessment  of  his  property  made  by  the  board  of  as- 
sessors, as  required  of  them  by  the  provisions  of  the  second  para- 
graph of  section  35  of  the  said  act  of  February  25,  1898,  though 
he  had  complained,  in  writing,  to  said  board  of  review  that  the 
estimate  of  the  value  of  his  said  property  made  by  the  board  of 
assessors  was  too  high. 

Conceding  that  the  board  of  review  refused  to  perform  a  plain 
duty  imposed  upon  it  by  law,  to  ascertain  the  fair  cash  value  of  his 
lots  and  review  and  correct  the  estimate  of  such  value  made  by  the 
board  of  assessors,  could  the  appellant  lawfully  take  no  further 
steps  to  procure  an  estimate  to  be  made  by  the  tribunal  empowered 
to  perform  such  duty,  refuse  to  pay  the  taxes  levied  on  the  estimated 
values  as  made  by  the  board  of  assessors  and  standing  approved 
by  the  non-action  of  the  board  of  review,  and  demand  that  the 
county  court,  when  asked  to  enter  judgment  against  his  lots  as 
delinquent  for  such  taxes,  should  take  upon  itself  the  duty  of  esti- 
mating the  true  fair  cash  value  of  his  property?  AVe  think  not. 
His  duty  was  to  employ  the  ample  remedy  provided  by  the  law 
to  compel  the  board  of  review  to  discharge  the  duties  imposed  upon 
them  bv  law,  and  ascertain  the  true  fair  cash  value  of  his  property 
and  revise  the  action  of  the  board  of  assessors  accordingly.  The 
board  of  review,  and  not  the  courts,  are  invested  with  the  power  to 
estimate  the  value  of  assessable  property,  and  he  should  have  sought 
the  aid  of  the  courts,  not  to  estimate  the  value  of  his  property, 
but  to  command  the  board  of  review  to  perform  that  duty. 

In  the  case  of  Beidler  v.  Kochersperger,  171  111.  5G3,  which  was 
an  appeal  from  the  decree  of  the  circuit  court  dismissing,  for  want 
of  equity,  a  bill  in  chancery  which  sought  to  enjoin  the  collection 
of  a  tax,  because,  as  alleged,  the  property  had  been  over-assessed, 
and  that  appellant  filed  his  complaint  with  the  board  of  supervisors 
sitting  as  a  board  of  review,  and  while  said  complaint  was  pending 
before  a  committee  of  that  board   to  whom   it   had   been   referred 


356  LOEWEXTHAL    V.     TEOPLE.  [cHAP.    VI. 

the  board  adopted  a  general  resolution  confirming  the  assessment 
returned  b}'  the  assessors,  without  notice  to  appellant  or  an  opportu- 
nit}'  to  be  heard  before  the  board  and  without  considering  his  com- 
plaint, and  thus  disposed  of  and  completed  its  work  as  a  board  of 
review,  we  said  (p.  566)  :  "The  statute  imposed  upon  the  board  of 
supervisors,  as  an  absolute  duty,  to  entertain,  consider  and  detennine 
the  application  of  appellant  for  relief  with  respect  of  the  alleged 
over-valuation  of  his  property.  Courts  of  law  possessed  ample 
power  to  enforce  the  performance  of  this  duty  by  the  board.  Ap- 
pellant could  have  applied  to  such  courts  for  a  writ  of  mandamus 
to  compel  the  board  to  perform  the  duty  so  charged  upon  it  by  the 
statute,  —  that  is,  to  hear,  consider  and  decide  as  to  the  alleged 
grievance.  ...  It  is  the  policy  of  our  law  the  whole  matter  of  the 
valuation  of  propert}'  for  taxation  shall  be  committed  to  the  control 
of  the  assessor,  the  board  of  review  and  the  board  of  supervisors 
of  the  respective  counties.  (People  ex  rel.  v.  Lots  in  Ashley,  122  111. 
297.)  It  was  therefore  incumbent  upon  the  appellant  to  have 
availed  himself  of  the  ample  and  adequate  remedy  of  the  writ  of 
mandamus  to  secure  action  on  the  part  of  the  board  of  supervisors, 
in  order  that  his  grievances,  if  any  he  justly  had,  should  be  heard 
and  determined.  The  law  gave  him  his  day  in  court.  Neither 
fraud,  accident  nor  mistake  of  fact  intervened  to  prevent  or  excuse 
him  from  availing  himself  of  his  legal  right.  He  did  not  seek  his 
legal  remedy,  and  whether  he  misconceived  the  law  or  was  simply* 
negligent,  it  is  well  settled  he  cannot  invoke  the  aid  of  a  court  of 
chancery  to  relieve  him."  In  Kochersperger  v.  Lamed,  172  111. 
86,  and  Kinley  Manf.  Co.  v.  Kochersperger,  174  id.  379,  the  same 
doctrine  was  announced  and  applied  as  in  the  Beidler  case. 

Appellant  urges  that  it  appears  from  the  stipulated  facts  that 
the  board  of  review  did  not  refuse  to  grant  him  a  hearing;  on  the 
contrar}'',  they  constantly  expressed  a  willingness  and  intention  to 
do  so;  and  that  the  first  intimation  he  had  that  he  would  not  be 
afforded  a  hearing  by  the  board  of  review  was,  that  said  board  had 
delivered  the  books  containing  the  assessment  of  real  property  to 
the  county  clerk.  He  contends,  therefore,  that  he  could  not  have 
maintained  mandamus  in  anticipation  of  a  supposed  evasion  or 
omission  of  duty  on  the  part  of  the  board;  that  mandamus  will  not 
lie  to  compel  an  officer  to  do  an  act  vrhich  he  expresses  a  willingness 
to  do,  and  that  the  board  were  without  power  to  make  any  changes 
or  revision  of  the  assessments  after  they  had  transferred  the  books 
of  assessment  to  the  county  clerk;  that  therefore  mandamus  would 
not  lie,  either  while  the  books  were  in  the  hands  of  the  board  of 
review  or  after  such  books  had  been  transferred  to  the  county  clerk. 

Any  evasion  of  a  positive  duty  by  an  officer  or  a  legal  tribunal, 
amounting  to  a  virtual  refusal  "to  perform  the  duty,  is  all  that  is 
needed  to  maintain  a  writ  of  mandamus.  (Illinois  State  Board  of 
Dental  Examiners  v.  People,  123  111,  227).  Conduct  from  which  a 
refusual  can  be  conclusively  implied  is  equivalent  to  a  positive  refusal. 
(People  ex  rel.  v.  Town  of  Mt.  Morris,  137  111.  576;  14  Am.  & 


CHAT.    VI.]  LOEWEXTIIAL     V.     PEOPLE.  357 

Eng,  Enc}'.  of  Law, —  1st  ed.  —  lOT.)  The  evasions  of  dut}-  shown 
by  the  stipulation  and  the  transfer  of  the  books  of  assessment  to 
the  county  clerk  constituted  a  refusal  to  act  by  conclusive  implica- 
tion, and  the  appellant  could  have  applied  for  a  writ  of  mandamus 
at  once  upon  being  advised  that  the  board  of  review  had  delivered 
the  books  of  assessment  to  the  county  clerk  without  acting  on  his 
complaint. 

Counsel  for  appellant  are  in  error  in  the  view  that  mandamus 
would  be  unavailing  after  the  board  of  review  had  delivered  the 
books  of  assessment  to  the  county  clerk.  Section  38  of  the  ax-t  of 
1898  (Hurd's  Stat.  1899,  p.  1453,)  provides  that  the  board  of  re- 
view in  the  county  of  Cook  shall,  on  or  before  the  7th  day  of 
September,  annually,  complete  its  work  and  make  the  necessary 
entries  in  the  assessment  lx)oks  to  make  the  assessments  conform 
to  the  changes  made  therein  by  said  board,  and  shall  attach  to  said 
books  of  assessment  an  affidavit,  after  a  form  prescribed  in  the 
section ;  and  section  43  of  the  same  act  requires  the  board  of  review 
to  deliver  the  assessment  books,  when  so  completed,  to  the  county 
clerk.  But  a  proviso  a<lded  to  said  section  38  of  said  act  provides 
"that  in  counties  containing  125,000  or  more  inhabitants  the  board 
of  review  shall  also  meet  from  time  to  time  and  whenever  necessary 
to  consider  and  act  upon  complaints  and  to  further  revise  the  assess- 
ment of  real  property  as  may  be  just  and  necessary." 

Without  assuming  to  declare  that  this  proviso  has  further  or  other 
eflfect,  it  is  clear,  under  the  provisions  thereof,  the  courts,  by  means 
of  a  writ  of  mandamus,  could  compel  the  board  of  review  to  convene 
after  the  said  ?th  day  of  September  for  the  purpose  of  performing 
a  duty  which  rested  upon  them  when  the  books  were  declared  to  be 
completed,  as  did,  in  this  instance,  the  duty  to  consider  and  act 
upon  the  complaint  of  the  appellant.  An  inferior  tribunal  which 
has  omitted,  and  by  evasion  refused,  to  perform  an  official  duty 
while  officially  conveneu,  cannot,  by  adjourning  its  meeting  sine  die, 
place  itself  beyond  the  coercive  power  of  the  courts  to  compel  the 
performance  of  a  duty  enjoined  by  law.  It  may  be  required  to 
re-convene  and  perform  its  legal  functions.  If,  as  was  remarked 
in  People  v.  Board  of  Supervisors,  185  111.  288,  it  is  the  general 
rule  mandamus  will  not  be  gi-anted  in  anticipation  of  a  default  or 
failure  of  official  duty,  it  must  be  that  the  writ  can  be  availed  of 
after  the  omission  or  failure  has  occurred,  otherwise  the  observance 
or  non-observance  of  the  statutory  duty  would  become  a  matter  wholly 
resting  in  the  uncontrollable  discretion  of  the  public  officer  or  official 
tribunal  charged  with  the  duty.  The  appellant  should  have  availed 
himself  of  this  writ,  and  thereby  obtained  the  revision  of  the  estimate 
of  the  value  of  his  property  as  made  by  the  board  of  assessors.  The 
countv  court  correctly  overruled  his  objections  to  the  application 
for  judgment  against  his  lots. 

The  judgment  appealed  from  is  affirmed. 

Judgment  affirmed. 

Magruder  and  Cartwright,  JJ.,  dissented. 


358  SHENANGO  i'UBNACE  CO.    V.   FAIRFIELD.        [cHAP.    VI. 

SHENANGO   FURNACE   COMPANY  v.  FAIEFIELD 

TOWNSHIP. 

SuPBEME  Court  of  Pennsylvania.     1905. 

[Reported  229  Pa.   357.] 

Mestrezat,  J.  This  is  a  bill  filed  by  the  plaintiff  company  (a) 
to  restrain  the  defendants  from  collecting  a  balance  of  road  taxes 
alleged  to  be  due  for  the  year  1907,  (b)  for  an  accounting  to  as- 
certain the  amount  paid  by  the  plaintiff  inadvertently  and  by  mis- 
take on  account  of  such  taxes  in  excess  of  the  amount  legally  due, 
and  (c)  for  a  decree  that  defendants  pay  to  plaintiff  the  amount 
of  such  excess. 

The  defendant  township  is  of  the  second  class  and  the  plaintiff 
companv  o\\tis  coal  lands  in  the  township,  the  adjusted  valuation 
of  which  for  1906  was  $19,400.  Prior  to  March,  1907,  the  township 
assessor  returned  a  valuation  of  the  lands  to  the  county  commis- 
sioners which  was  very  largely  in  excess  of  the  valuation  for  1906. 
The  valuation  so  returned  to  the  commissioners  was  revised  and 
reduced  bv  them  sitting  as  a  board  of  revision  on  June  25,  1907. 
From  this  valuation  plaintiff  appealed  to  the  common  pleas,  which 
finally  adjudicated  the  valuation  in  December,  1907  at  $330  per 
acre, 'or  $2-18,8-30  in  all.  On  the  first  Monday  of  March,  1907,  the 
township  supervisors  met  and  fixed  the  rate  for  road  tax  at  eight 
mills  for  that  year.  At  that  time  there  was  no  "  adjusted  valuation  '* 
for  1907.  On  May  31,  1907,  an  agent  of  plaintiff  tendered  to  the 
tax  collector  the  sum  of  $156.20,  being  the  amount  of  the  road  tax 
for  1907,  at  the  rate  of  eight  mills  on  the  valuation  for  1906.  The 
tender  was  refused  because,  as  the  collector  said,  he  had  no  duplicate 
and  was  without  authority  to  receive  the  tax.  In  the  early  part 
of  January,  1908,  the  tax  collector  gave  the  plaintiff  company  notice 
to  pay  taxes  based  upon  the  1907  valuation,  the  sum  claimed  being 
$2,091.14,  and  within  a  few  days  plaintiff  paid  to  the  collector 
$1,722.56,  being  the  amount  claimed  in  the  notice,  less  certain 
deductions  whic^i  the  plaintiff  alleged  should  be  made.  Shortly 
after  this,  plaintiff  demanded  the  refunding  of  all  over  $156.20, 
the  amount  due  on  the  valuation  for  1906.  This  was  refused  and 
the  collector  demanded  the  balance,  $368.58;  whereupon,  in  Feb- 
ruary, 1908,  this  bill  was  filed.  An  answer  and  replication  were 
filed"^  and  the  case  was  referred  by  asfreement  to  a  referee  who  rec- 
ommended a  decree  enjoining  the  collection  of  the  balance  of  $368.58 
and  directing  payment  to  the  plaintiff  by  defendants  of  $1,566.36, 
the  difference  between  the  amount  paid  by  plaintiff  and  $156,20, 
the  amount  due  on  the  1906  valuation.  A  final  decree  in  accordance 
with  the  referee's  report  was  entered  by  the  court  below.  The 
defendants  have  appealed. 

It  is  conceded  by  the  parties  that  under  our  recent  rulings  the 
levy  for  road  taxes  made  by  the  supervisors  on  the  first  Monday  of 
March,  1907,  should  have  Ijeen  made  on  the  adjusted  valuation  for 
1906,  and  that  a  court  of  equity  has  jurisdiction  to  restrain  the 
collection  of  the  $368.58,  the  balance  claimed  by  the  township  for 


CHAP.    VI.  I         SHENANOO  Fl.'KNACE   CO.    /'.    I'AIRFIKLI).  369 

taxes  due  from  the  plaintiff  company  on  the  valuation  of  lOOT. 

There  was  suthcient  evidence  to  warrant  the  court  below  in  findin;^ 
that  the  plaintilf  tendered  the  sum  of  $irjG.20,  on  May  31,  1907, 
in  })ayriient  of  the  road  taxes  for  that  year  admitted  to  be  due  by 
the  j)laintiir.     The  fourth  assignment,  therefore,  cannot  be  sustained. 

In  ascertainin<^^  the  right  of  the  plaintilf  company  to  have  re- 
funded the  sum  of  $1,566.36,  ta.xes  paid  by  the  company  on  the  1007 
valuation,  two  questions  must  be  considered:  (1)  Was  the  payment 
a  voluntary  one  in  the  legal  sense  which  prevents  its  recovery  back, 
and  {2}  was  it  made  under  such  mistake  or  ignorance  of  facts  that 
the  plaintilf  is  entitled  to  have  the  money  repaid. 

1.  Was  the  payment  of  the  money,  under  the  facts  of  the  case, 
voluntarily  nuide  by  the  ])laintiir  so  that  he,  for  this  reason,  is  Dot 
entitled  to  have  it  refunded  ?  This  question  is  settled  by  a  long 
line  of  decisions  in  this  state  and,  hence,  we  are  not  required  to 
treat  or  consider  it  as  one  of  first  impression.  C.  P.  Dyer,  the 
vice-president  of  the  plaintiff  company  and  authorized  to  act  for 
it  in  the  matter,  directed  the  payment  to  be  made  by  the  proper 
officer  of  the  company.  While  testifying  at  length  in  the  case,  the 
facts  found  by  the  learned  referee  and  the  court  below  being  based 
upon  his  testimony,  he  does  not  even  suggest  that  any  official  of 
the  defendant  township  at  any  time  ever  threatened  to  resort  to 
legal  process  for  the  collection  of  the  taxes,  or  exacted  them  by 
duress,  or  went  beyond  making  a  demand  for  their  payment,  or 
did  any  act  by  which  the  plaintiff  was  misled.  Neither  does  it 
appear  by  the  evidence  nor  is  it  claimed  by  Mr.  Dyer  or  any  other 
representative  of  the  plaintiff  company  that  it  made  the  payment 
under  protest  or  with  notice  of  an  intention  to  reclaim  any  part  of 
the  vsum  paid.  The  case  is  entirely  barren  of  any  such  facts,  and 
it  is,  therefore,  clear  that  under  the  settled  law  of  this  state  the 
pavmcnt  was  voluntary  and  not  such  as  to  justify  the  plaintiff  in 
demanding  the  repayment  of  the  money. 

In  Lackey  r.  Mercer  County,  9  Pa.  318,  a  donation  tract  of  land 
was  sold  by  the  county  to  the  plaintiff  for  taxes.  He  entered  and 
improved  the  land  "which  was  subsequently  recovered  by  the  donee. 
While  in  possession,  the  plaintiff  paid  the  taxes  assessed  against  the 
land,  and  after  he  was  ousted,  he  brought  an  action  to  recover  the 
amount  paid  by  him  on  a  void  assessment,  the  land  being  exempt 
from  taxes.  The  court  entered  judgment  on  a  case  stated  for  the 
count}'.  Gibson.  (".  J.,  in  affirming  the  judgment  said:  "A  single 
fact  in  the  cause  turns  the  scale  against  the  plaintiff — the  payment 
was  voluntar}'.  The  cases  agree  that  a  party  who  has  paid  an  un- 
founded demand  without  constraint,  cannot  recover  it  back :  it  wf.s 
his  folly  to  part  with  his  money,  and  he  must  submit  to  lose  it.  .  .  . 
The  taxes  were  assessed  and  the  plaintiff  paid  them,  ....  without 
objection,  when  the  collector  called  on  him,  and  without  warning  to 
the  county  that  the  money  would  be  reclaimed.  There  could  not  be 
a  more  bald  case  of  voluntary  payment.  His  course  was  to  nu])c;il 
from  the  assessor  to  the  county  commissioners,  and,  if  they  would 
not  exonerate  him,   stand  a  distress  and  sale,  for  which  he  would 


360  SHENANGO  FUENACE  CO.    V.   FAIRFIELD.        [cJIAr.    VI. 

infallibly  have  recovered  by  action  of  trespass.  .  .  .  Independently 
of  that  (a  proper  contribution  to  the  public  treasury),  however,  a 
sufficient  answer  to  his  action  is  the  fact  that  he  made  it  without 
compulsion." 

Allentown  Borough  v.  Saegcr,  20  Pa.  421,  was  an  action  to  recover 
back  tlie  amount  of  taxes  illegally  assessed  by  the  borough  on  moneys 
at  interest  and  paid  to  the  tax  collector.  In  reversing  a  judgment 
for  the  plaintiff  this  court,  by  Lowrie,  J.,  said :  "  Part  of  the  taxes 
charged  against  Saeger  was  legal  and  part  illegal,  and  he  paid 
the  whole  on  demand,  and  now  seeks  to  recover  back  the  part  that 
was  illegallv  assessed.  It  cannot  be  allowed.  The  case  is  very 
different  from  that  of  payment  to  an  individual  by  mistake.  It 
■was  submission  to  legitimate  authority  which  was  prima  facie  right 
in  its  .exercise.  The  taxing  officers  performed  their  duty  as  well 
as  they  knew  how,  and  the  tax  was  submitted  to  by  one  who  was 
interested  in  the  purposes  for  which  it  was  raised,  though  it  might 
have  been  resisted  in  legal  form.  This  was  an  assent  to  pay  more 
in  support  of  the  government  of  the  town  than  the  town  had  a  right 
to  demand,  and  the  law  does  not  imply  the  duty  of  refunding.  If 
it  had  been  paid  under  protest,  that  is,  with  notice  that  he  would 
claim  it  back,  this  would  repel  the  implication  of  an  assent,  and 
give  rise  to  the  right  of  reclamation.  In  another  aspect  it  is  unlike 
to  a  payment  to  an  individual.  It  is  a  contribution  to  a  common 
fund,  in  the  benefits  of  which  he,  as  a  citizen  or  property-holder, 
participates.  It  is  intended  for  immediate  expenditure  for  the 
common  good,  and  it  would  be  unjust  to  require  its  repayment, 
after  it  has  been  thus,  in  whole  or  in  part,  properly  expended, 
which  would  often  be  the  case  if  suit  could  be  brought  for  its 
recovery  without  notice  having  been  given  at  the  time  of  payment; 
and  there  would  be  no  bar  against  its  insidious  spring  but  the 
statute  of  limitations.  On  these  principles  the  defendant  below  is 
entitled  to  the  judgment." 

In  Taylor  v.  Board  of  Health,  31  Pa.  73,  the  Philadelphia  board 
of  health  collected  a  state  tax  of  $1.00  a  head  on  immigrants  and 
the  plaintiff,  the  consignee  of  passenger  ships,  paid  this  tax  during 
six  years.  It  was  then  held  that  the  tax  was  unconstitutional,  and 
the  plaintiff  sued  to  recover  the  money  he  had  paid.  In  affirming 
a  judgment  for  the  defendant,  this  court,  by  LoW'Eie,  J.,  said  (p. 
74)  :  "  If  the  case  of  the  Borough  of  Allentown  v.  Saeger  was  decided 
upon  a  proper  principle,  then  the  judgment  ....  is  very  plainly 
right.  In  that  case  the  taxing  officers  had  no  authority  at  all  for 
imposing  the  tax  complained  of,  and,  as  it  was  paid  without  objec- 
tion, it  was  presumed  to  have  been  expended  for  public  purposes, 
and  held  to  be  irrevocable  from  the  district  whose  officers  imposed 
it.  In  the  present  case,  ....  the  plaintiff  seeks  to  recover  back 
the  taxes  voluntarily  paid  by  him.  We  state  the  case  as  one  of 
a  voluntary  payment  of  taxes,  because  there  is  no  pretense  that 
the  defendant  officers  did  any  more  than  demand  the  tax  under 
a  supposed  authority  of  law;  and  this  is  no  more  a  compulsion 
than  when  an  individual  demands  a  supposed  right.     The  threat 


CII 


AP.    VI.]         SHENANGO  FL'RXACK   TO.    V.   FAIKI-IEM).  301 


that  is  supposed  to  underlie  such  demands  is  a  legally  harmless 
one;  that,  in  case  of  refusal,  tlie  appropriate  legal  remedies  will 
be  resorted  to." 

In  Union  Insurance  Co.  v.  Allegheny,  101  Pa.  2.50,  the  sheriff's 
vendee  of  land  paid  under  protest  municipal  taxes  assessed  against 
him  before  the  sheriff's  sale.  Judgments  had  been  entered  for  the 
taxes  after  the  sale  but  their  lien  had  been  discharged  by  the  sale. 
The  city  solicitor  demanded  payment  with  threat  to  proceed  to  en- 
force payment  by  sale.  The  court  entered  judgment  for  the  city 
which  was  alFirmed  by  this  court  in  an  ojjinion  by  :\Ir.  Justic9  ^MpcUR 
who  reviews  the  authorities  on  the  subject,  and  says,  inter  alia  (p. 
257):  "By  application  to  the  equitable  powers  of  tlie  court  or  by 
bill  in  equity  execution  might  have  been  stayed,  and  the  claini  re- 
moved from  the  record.  Xo  immediate  and  urgent  necessity  existed 
for  the  payment  of  the  taxes  to  protect  the  property  of  the  plaintiffs. 
Its  goods  were  not  about  to  be  seized." 

In  Peebles  v.  Pittsburg,  101  Pa.  304,  municipal  assessments 
were  levied  on  plaintitPs  property  and  he  paid  on  notice  that  if  they 
were  not  paid  in  thirty  days  they  would  l)e  collected  by  process  of 
law.  lie  paid  under  protest  with  notice  that  if  not  legally  liable 
he  would  seek  to  recover  them  back.  Later  the  act  under  which 
the  assessments  were  made  was  held  unconstitutional,  and  he  brought 
assumpsit  to  recover  the  sum  paid.  In  affirming  a  judgment  for  the 
defendant  this  court,  by  Greex,  J.,  said  (p.  308)  :  "The  payments 
were  not  compulsory.  They  were  not  made  under  any  duress  of 
person  or  goods  or  under  any  impending  danger  of  seizure  or  sale 
of  property.  ...  In  the  latter  case  (AUentown  Boro.  v.  Saeger, 
20  Pa.  42i),  the  money  was  paid  to  an  ordinary  tax  collector,  who, 
it  must  be  supposed,  was  armed  with  a  warrant  in  the  usual  manner. 
...  It  is  worthy  of  remark  that  in  the  case  just  referred  to  (Union 
Pacific  E.  E.  Co.  v.  Commissioners,  98  U.  S.  541),  the  claim  paid 
was  for  taxes  and  the  treasurer  had  in  his  hands  at  the  time  a 
warrant  which  would  have  authorized  him  to  sei'^e  the  goods  of  the 
companv  to  enforce  collection.  .  .  .  Notwithstanding  all  this  it  was 
held  that  no  recovery  could  l)e  liad  because  in  fact  no  attempt  had 
been  made  to  put  the  warrant  in  force." 

The  subject  of  voluntary  payments  and  the  right  of  the  payor 
to  recover  them  back  from  the  payee  is  elaborately  discussed  and 
the  authorities  reviewed  by  chief  Justice  Paxson  in  De  la  Cuesta 
V.  Insurance  Co.,  136  Pa.  62.  After  quoting  from  the  opinion  in 
Christ  Church  Hospital  v.  Philadelphia,  24  Pa.  229,  the  chief  justice 
says  (p.  70)  :  "We  have  here,  succinctly  stated,  the  principle  upon 
which  the  doctrine  rests  in  its  application  to  a  warrant  for  the 
collection  of  taxes.  If  the  demand  is  illegal,  and  the  party  can 
save  himself  and  his  property  in  no  other  way,  he  may  pay  under 
protest  and  recover  it  back.  '  But  if  other  means  are  open  to  him 
by  which  he  may  prevent  the  sale  of  his  property ;  if  a  day  in  court 
is  accorded  to  him,  he  must  resort  to  such  means." 

The  same  doctrine  is  announced  and  applied  in  Hospit;il  r.  Phila. 
Co.,  24  Pa.  229 ;  Phila.  v.  Cooke,  30  Pa.  56  :  McCrickart  v.  Pittsburg, 


362       UNDERWOOD  TYPEWKITER  CO.   V.   CHAMBERLAIN.     [cHAP.  VI. 

88  Pa.  133;  Pavne  et  al.  v.  Coudersport  Borough  School  Dist.,  168 
Pa.  386. 

Applying  the  doctrine  of  these  cases  to  the  case  in  hana,  it  is 
apparent  that  the  payment  made  hy  the  plaintiff  in  January,  1908, 
was  voluntary  and  not  compulsory.  Tlie  collector  made  no  threat 
to  enforce  payment  or  to  execute  his  warrant,  if  one  he  had.  As  we 
have  saitl,  there  was  no  duress  against  the  person,  nor  was  the  money 
paid  under  protest  or  with  notice  that  it  would  be  reclaimed.  The 
payment,  therefore,  was  entirely  voluntary.  As  pointed  out  in  the 
authorities  cited,  if  the  plaintiff  company  denied  the  legality  of  the 
road  tax  assessed  on  the  1907  valuation,  its  duty  was  to  tender  the 
amount  lawfully  due  under  the  1906  valuation,  refuse  to  pay  the 
balance  demanded,  and  if  necessary  invoke  the  aid  of  a  chancellor 
to  restrain  its  collection  just  as  it  has  successfully  done  in  this  pro- 
ceeding as  to  the  excess  alleged  to  be  yet  due  the  township.  This 
would  "have  given  the  plaintiff  its  day  in  court  and  ample  protection 
against  payment  of  the  taxes  which  it  seeks  to  reclaim  in  this 
proceeding.  ... 

The  decree  entered  by  the  learned  court  below  must  be  sustained 
so  far  as  it  enjoins  the  defendants  from  collecting  $368.58,  the  bal- 
ance of  taxes  alleged  to  be  due,  and  dismissed  so  far  as  it  directs 
the  repayment  to  the  plaintiff  of  the  sum  of  $1,566.36,  the  difference 
between  "the  amount  of  taxes  legally  due  from  the  plaintiff  and  the 
sum  paid  by  it  to  the  defendants.  As  thus  modified,  the  decree  is 
affirmed. 


UNDERWOOD   TYPEWRITER  COMPANY  v. 
CHAMBERLAIN. 

Supreme  Court  of  Eiikors  of  Connecticut,     1917. 

[Reported  92  Conn.  199.] 

Action  to  recover  the  amount  of  a  tax  laid  under  Part  IV  of  the 
Act  of  1915,  alleged  to  have  been  paid  by  the  plaintiff  under  protest 
and  to  escape  irreparable  injury  to  its  property,  bi-ought  to  the  Su- 
perior Court  in  Hartford  County  where  a  demurrer  to  the  prayers 
for  relief  was  sustained  (Burpee,  J.)  and  judgment  rendered  ((rager, 
J.)  for  the  defendant,  from  which  the  plaintiff  appealed.  Error; 
demurrer  overruled. 

Wheeler,  J.  ...  If  the  plaintiff,  with  full  knowledge  of  the  facts, 
paid  this  tax  voluntarily,  he  cannot  recover  it,  even  though  the  tax 
were  invalid  and  paid  under  protest.  Sheldon  v.  South  School  Dis- 
trict, 24  Conn.  88,  91.  The  tax  in  question  was  paid  "  under  protest, 
in  order  to  escape  irreparable  injury  through  the  enforcement  of 
the  penalties  and  coercive  features  of  the  Act,"  the  complaint  alleges. 
The  admissions  of  the  demurrer  go  no  further  than  the  terms  of 
the  Act. 

The  tax  would  become  due  under  the  Act  on  or  before  August 
1st.  Ten  days  thereafter,  and  upon  notice  and  demand  of  payment 
bv  the  State  treasurer,  five  per  centum  of  the  unpaid  tax  would 


CHAP.    VI.]    UNDERWOOD  TYl'EWKITER  CO.    r.    C  H  AMCEUEAIN.       363 

automatically  be  added  to  it,  and  interest  at  the  rate  of  three-fourths 
of  one  per  centum  per  month  upon  such  tax  from  the  date  the  tax 
became  due,  would  he  added. 

Further,  the  iinj)aid  tax  became  a  lien  upon  the  real  estate  of  the 
Company  within  tlie  State  from  the  time  the  tax  became  due  and 
was  unpaid,  and  from  the  filinf^  of  a  certificate,  signed  by  the  State 
treasurer,  in  the  land  records  of  the  town.  Since  the  filing  of  the 
certificate  might  be  contemporaneous  with  the  date  when  the  tax 
became  due  and  unpaid,  the  Company  was  in  danger  of  having 
this  lien  placed  upon  its  property  from  such  date. 

The  Company  was  confronted  with  this  situation :  Though  it 
contested  the  validity  of  tiie  tax  successfully  it  could  not  prevent 
the  filing  of  the  lien  upon  its  property.  And  if  it  were  unsucces.=ful, 
no  m.atter  what  merit  its  claims  possessed,  the  lien  would  attach, 
and  the  five  per  centum  penalty  and  the  nine  per  centum  interest 
would  accrue.  The  lien  might  prove  a  serious  burden  upon  its 
credit,  while  the  actual  pecuniary  losses,  suffered  or  threatened, 
involved  a  hardship  and  loss  which  no  company  should  be  compelled 
to  face.  Jt  could  not  measure  the  extent  of  these  penalties,  because 
it  could  not  know  the  time  the  tax  litigation  would  take.  It  would 
be  unfair  to  it  to  compel  it  to  take  this  risk  of  loss  as  the  condition 
of  its  right  to  test  the  validity  of  the  tax.  It  should  have  that  right 
without  condition,  and  by  a  clear  and  certain  remed^^ 

This  is  common  practice  and  it  is  sound  public  policy.  It  is  not 
to  the  advantage  of  the  State  that  those  whom  it  seeks  to  tax  should 
refuse  to  pay  their  taxes  in  order  to  test  their  validity.  Such  a 
course,  if  largely  followed,  might  cause  the  State  more  than  an 
inconvenience  in  the  disturbance  of  the  budget  upon  which  the 
payment  of  its  governmental  obligations  depended.  The  more  orderly 
course  is  a  compliance  with  the  law  by  a  payment,  reserving  the 
right  to  contest  the  validity  of  the  required  payment. 

The  payment  of  the  tax  in  question  was  not  a  voluntary  one,  it 
was  in  the  contemplation  of  the  law  a  payment  under  duress  of 
the  penalties  of  the  Act.  And  this  Ave  hold  from  a  consideration 
of  the  provisions  of  the  Act,  and  without  a  consideration  of  any 
remedies  by  way  of  distress  which  the  State  might  have  for  the 
enforcement  of  payment  of  this  tax.  A  payment  of  a  tax  made  to 
avoid  the  onerous  penalties  of  the  Act  imposing  the  tax  for  its  non- 
payment, is  not  a  voluntary  payment.  The  more  modem  doctrine 
supports  this  view,  Robertson  v.  Frank  Brothers  Co.,  132  U.  S.  17, 
10  Sup.  Ct,  5;  Atchison,  T,  &  S.  F.  Ry.  Co.  v.  O'Connor,  223  U.  S, 
280,  285,  32  Sup.  Ct.  216, 

Vie  reached  practically  the  same  conclusion  in  Seeley  v.  Westport, 
47  Conn.  294,  299,  on  a  petition  to  restrain  a  town  and  its  officers 
against  a  levy  upon  real  estate.  We  said :  "  We  think  therefore  that 
the  law  is  so  thiit  a  man  may  protect  his  land  from  a  sale,  or  prevent 
a  cloud  upon  his  title,  by  paying  the  tax  and  have  his  remedy  to 
recover  it  back  if  the  tax  was  illegal  and  unjust." 

It  was  not  necessary  for  the  plaintiff  to  wait  until  demand  was 
made  by  the  State  treasurer;  the  tax  was  due  August  1st,  it  was 


364  NAT.    METAL    EDGE    BOX    CO.    V.    EEADSBOEO.        [cHAP.    VT, 

paid  July  29th,  and  the  lien  might  have  been  made  effective  on 
August  1st.  The  compulsion  of  the  law  began  when  the  tax  was 
due,  and  it  would  have  served  no  purpose  to  have  permitted  the 
defendant  to  have  made  demand,  or  to  have  been  about  to  file  the 
lien,  before  paying  the  tax.  The  plaintiff  pursued  the  orderly 
course,  it  paid  under  protest  and  upon  pressure  of  the  law's 
duress.  .  .  . 

There  is  error  and  the  judgment  is  reversed  and  the  Superior 
Court  directed  to  overrule  Jihe  defendant's  demurrer  to  the  claims 
for  relief. 


NATIONAL  METAL  EDGE  BOX  CO.  v.   EEADSBOEO. 

SuPKEME  Court  of  Yermoxt.     1930. 

[Reported  111   Atl  Rep.  386.] 

Miles,  J.  This  is  an  action  on  contract  to  recover  money  paid 
the  defendant  under  an  alleged  protest,  upon  taxes  claimed  hj  the 
plaintiff  to  have  been  illegally  and  improperly  assessed  against  it. 
At  the  close  of  the  evidence  both  parties  moved  for  a  directed  ver- 
dict. The  motion  of  the  plaintiff  was  granted,  and  upon  the  verdict 
thus  directed  judgment  was  rendered  for  the  plaintiff.  To  the 
direction  of  the  verdict  and  judgment  thereon  the  defendant  was 
allowed  an  exception  and  also  an  exception  to  the  court's  refusal 
to  grant  its  motion  for  a  directed  verdict. 

The  evidence  tended  to  show  that  the  plaintiff  is  a  corporation, 
organized  under  the  laws  of  Pennsylvania  and  located  and  having 
its  principal  place  of  business  at  Philadelphia,  but  is  doing  quite 
an  extensive  business  in  the  defendant  town,  where  it  owns  real 
and  personal  property  of  large  value;  that  for  the  year  1917,  the 
plaintiff  filed  with  the  listers  of  the  defendant  its  inventory  of  tax- 
able property  in  that  town,  and  in  that  inventory,  to  question  25a, 
which  is  as  follows:  "On  April  1,  1917,  what  was  the  aggregate 
amount  of  existing  debts  then  due  or  thereafter  to  become  due  to 
the  maker  hereof  from  all  solvent  debtors  within  or  without  the 
state  of  Vermont?"  —  it  answered:  "31,635."  The  answer  was 
correct,  but  the  plaintiff  insisted,  before  and  at  the  time  the  inven- 
tory was  delivered  to  the  listers,  that  those  debts  were  not  taxable, 
because  their  situs  was  in  Pennsylvania  and  not  in  Eeadsboro,  and 
because  they  consisted  of  charges  of  book  representing  the  purchase 
price  of  tangible  personal  property  on  which  no  interest  was  charged. 
No  question  is  made  but  that  those  debts  consisted  of  charges  of 
books  representing  the  purchase  price  of  tangible  personal  property; 
but  the  defendant  claimed  that  there  was  no  evidence  in  the  case 
tending  to  show  that  no  interest  was  charged  upon  them  nor  evi- 
dence tending  to  show  they  had  their  situs  in  Pennsylvania. 

[1]  The  principal  question  raised  is  whether  there  was  evidence 
tending  to  show  those  two  claims.  The  evidence  bearing  upon  the 
question  of  the  situs  of  the  accounts  assessed  tended  to  show  that 
the  accounts  originating  from  the  business  in  Eeadsboro  were  kept 


CHAP.    VI.]        >AT.    METAL    EDGE    BOX    CO.    V.    READSBOKO.  365 

at  the  plaintiff's  home  office  in  Philadelphia,  except  some  small 
matters  fn  no  way  connected  with  the  accounts  in  question,  and  all 
the  branch  office  at  Readsboro  had  to  do  witli  keeping  tliose  ai-couuts 
was  to  send  to  the  home  office  in  I'liiladcliihia  a  statement  of  the 
daily  transactions  and  accounts  originating  during  the  day,  which 
were  usually  sent  on  the  following  day  after  the  transaction  occurred 
and  the  account  originated.  A  copy  of  tlie  statements  was  kept  at 
the  office  in  Readsboro,  and  the  originals  were  entered  upon  the 
books  of  the  plaintitf  in  Philadelphia.  Tlu'  ])ay  roll  of  the  employes 
at  Readsboro  was  sent  to  the  jjlaintilf  at  Philadelphia,  and  checks 
were  returned  with  which  to  pay  tlie  eni|)loyes.  All  the  merchandise 
manufactured  and  sold  from  the  branch  business  at  Readsboro  wa.s 
paid  for  at  the  office  of  the  plaintilf  at  Philadelphia.  All  the  plain- 
tiff's business  matters  originating  at  Readsboro  were  attended  to  at 
the  plaintiff's  home  office  in  Philadelphia.  The  business  conducted  at 
Readsboro  consisted  in  manufacturing  paper  box  board  and  pulp, 
which  was  principally  sent  to  Philadelphia,  but  some  was  shipped 
elsewhere  on  orders  from  the  Philadelphia  office,  in  which  case  a 
memorandum  of  the  shipment  was  sent  to  the  home  office.  The 
office  at  Readsboro  had  nothing  to  do  with  the  sale  of  the  goods 
manufactured  tliere,  nor  with  fixing  the  price  for  which  they  were 
sold.  We  think  this  evidence  clearly  tended  to  show  that  the  situs 
of  the  accounts  assessed  by  the  listers  of  defendant  was  in  Penn- 
sylvania, and  not  in  Readsboro. 

[2]  It  is  a  general  rule  of  law,  with  few,  if  any  exceptions,  that 
debts  can  have  no  locality  separate  from  the  parties  to  whom  they 
are  due.  Says  Mr.  Justice  Field,  respecting  this  rule,  in  Cleveland, 
etc.,  R.  R.  Co.  V.  Pennsylvania,  83  U.  S.  (15  Wall.)  300,  'Z\  L.  Ed. 
179: 

"  This  principle  might  be  stated  in  many  different  ways,  and  sup- 
ported by  citations  in  numerous  adjudications,  but  no  number  of 
authorities  and  no  forms  of  expression  could  add  anything  to  its 
obvious  truth,  which  is  recognized  upon  its  simple  statement." 

With  the  creditor  debts  are  property  and  may  be  taxed.  All  the 
property  there  can  be  in  debts  belongs  to  tlie  ceditor.  Cleveland, 
etc.,  R.  R.  Co.  V.  Pennsylvania,  supra :  Bullock  v.  Guildford,  59 
Yt.  516,  9  Atl.  360;  State  v.  Clement  National  Bank,  84  Vt.  167, 
199,  78  Atl.  944,  Ann.  Cas.  1912D,  22.  The  accounts  assessed  were 
not  only  due  to  and  owned  by  the  plaintiff,  whose  domicile  was  in 
Pennsylvania,  but  the  accounts  themselves  were  in  fact  permanently 
held  and  situated  in  Pennsylvania  and  not  in  Readsboro. 

[3-5]  But  the  defendant  contends,  though  that  may  be  so,  the 
plaintiff  cannot  recover  ii_  this  suit ;  becnuse  its  exclusive  remedy 
was  by  appeal  from  the  lister's  decision  to  the  board  of  civil  au- 
thority, and  if  not  satisfied  with  their  decision,  by  appeal  to  the 
commissioner  of  taxes,  and  it  cites  in  supnort  of  this  contention 
sections  785,  834,  and  842  of  the  General  Laws.  The  proceedings 
provided  for  in  those  sections  all  relate  to  errors  and  mistakes  of 
the  listers  in  the  assessment  of  taxable  property,  and  not  to  prop- 
erty over  which  thev  have  no  jurisdiction  or  right  to  assess.     In 


l](j()  NAT.     METAL    EIXiK    BOX    CO.     V.    KEADSBOKC         [cilAP.    VI. 

Babcock  v.  Granville.  44:  Vt.  325,  an  action  in  assnnij^sit  to  re- 
cover money  paid  on  taxes,  under  protest,  one  of  tlie  defenses  in- 
sisted upon  was  that  the  plaiutilfs  exclusive  remedy  was  under 
section  GG  of  chapter  15  of  the  (Jeneral  Statutes,  which  provided, 
among  other  things,  that  the  board  of  civil  authority  "may  abate, 
in  whole  or  part,  any  tax,  which  has  been  assessed  on  the  list  of 
any  person,  in  which  there  is  manifest  error  or  m  which  there  is  a 
mistake  of  the  listers  or  assessors  who  made  up  such  list."  This 
court  held  in  that  case  that  it  was  not  the  exclusive  remedy, 
and  that  the  action  was  maintainable.  While  the  remedy  for  errors 
and  mistakes  in  assessments  by  the  listers,  under  that  statute,  was 
by  abatement,  instead  of  by  a  hearing  before  the  board  and  appeal 
to  the  conmiissioner  of  taxes,  the  principle  involved  is  the  same, 
and  goes  to  the  extent  of  supporting  the  plaintiff's  contention  that, 
for  an  illegal  assessment,  the  taxpayer  is  not  confined  to  the  statutory 
remedy.  The  court  in  Babcock  v.  Granville  say  that  many  actions 
of  that  kind  have  been  brought  in  this  state  and  have  been  main- 
tained. It  was  early  laid  down  in  this  state  that  where  the  tax 
is  illegal  and  therefore  void  the  money  paid  under  protest  may  be 
recovered  in  an  action  at  law.  Henry  v.  Chester,  15  Vt.  460,  470. 
But  the  defendant  further  contends  that  the  tax  was  not  illegal, 
because  the  plaintiff  included  the  debts  mentioned  in  the  answer 
to  question  25a  in  its  inventory.  The  case  shows  this  was  done  at 
the  insistence  of  the  listers  who  took  the  inventory,  and  subject  to 
the  plaintiff's  objection  that  the  accounts  were  not  taxable.  In  these 
circumstances  the  listers  were  not  misled,  and  so  were  not  justified 
in  assessing  property  not  taxable,  on  the  ground  that  the  plaintiff 
was  stopped  from  claiming  their  illegality. 

[6]  The  defendant  further  contends  that  the  tax  was  not  illegal 
in  fact.  But  a  tax  assessed  against  a  person  upon  nontaxable  prop- 
erty, is  illegal  and  it  requires  no  citation  of  authorities  in  support 
of  this  holding. 

[7]  The  defendant  further  contends  that  the  evidence  shows  that 
the  tax  was  paid  voluntarily.  We  think  it  does  not.  A  check  in 
payment  of  the  tax  assessed  upon  the  accounts  in  question  was  de- 
livered to  the  treasurer  of  defendant  by  the  plaintiff's  superintendent, 
in  a  letter  of  the  following  tenor : 

"October  18,  1917. 

"  ^Ir.  C.  H.  Brown,  Treasurer,  Eeadsboro,  Vt.  —  Dear  Sir :  We 
understand  that  unless  the  village  and  town  of  Eeadsboro  tax  for 
1917  is  paid  according  to  the  assessment,  as  per  bill  September  22, 
1917,  we  will  subject  ourselves  to  a  penalty  of  8  per  cent. 

"In  order  to  avoid  the  penalty,  we  are  inclosing  herewith  our 
check  for  $4,762.15,  but  are  making  this  payment  under  protest 
with  a  view  of  taking  the  necessary  proceedings  to  recover  the  excess 
tax,  which  we  are  obliged  to  pay  on  the  erroneous  and  improper 
assessment.  The  erroneous  assessment  complained  of  is  on  the  item 
No.  25a  of  $31,635.44  on  our  tax  inventory  returned  to  listers  in 
April,  1917,  on  which  the  tax  charged  is  $996.50,  less  discount 
4  per  cent.  $956.64,  and  for  which  bill  is  herewith  inclosed." 


CTIAI'.     VI.]         NAT.     MKIAI.     KImjk     IJOX     CO.     V.    JlEADSItOKO.  'M'>7 

Tliis  lettor  was  si^med  by  the  plaintifT.  While  it  is  a  hopeless  un- 
dertaking to  attempt  to  reconcile  the  authorities  from  difTercnt 
jurisdictions  and  extract  therefrom  a  rule  that  will  apply  to  every 
case  involving  the  question  of  protest,  we  think  that  in  our  own  de- 
cisions we  have  a  rule  that  is  followed  by  all  our  cases,  upon  the 
point  here  involved.  The  point  upon  which  conflict  arises  in  the 
different  jurisdictions  lies  in  the  determination  of  what  degree  of 
compulsion  is  necessary  to  make  the  payment  involuntary.  We 
hold  in  line  with  our  former  decisions  that  the  plaintiff  had  a  right  to 
expect,  in  the  circumstances  of  the  case,  that  unless  it  f)aid  the  tax 
within  the  time  limited,  in  due  course  a  warrant  would  issue,  and 
the  collection  be  enforced  with  costs  and  it  be  subjected  to  the 
penalty.  This  was  all  the  compulsion  necessary  to  make  the  payment 
involuntary  and  the  protest  available  under  our  former  holdings. 
Stowe  V.  Stowe,  70  Vt.  609,  41  Atl.  1042;  Allen  v.  Burlington,  45 
Vt.  202;  Babcock  v.  Granville,  supra. 

The  view  we  take  respecting  the  situs  of  the  accounts  assessed 
renders  it  unneccessary  to  consider  whether  interest  was  charged  on 
those  accounts,  as  that  question  now  becomes  immateral.  We  find 
no  error  in  the  judgment  and  proceedings  below,  and  the  same  is 
affirmed. 


368  PECK    V.    LOWE.  [chap.    VII. 


CHAPTER  VII. 

THE  FEDERAL  INCOME  TAX. 

PECK  V.  LOWE. 

Supreme  Couet  of  the  United  States.     1918. 

[Reported  247  C.  8.  165.] 

Van  Devaxter,  J.  This  was  an  action  to  recover  a  tax  paid  under 
protest  and  alleged  to  have  been  imposed  contrary  to  the  constitu- 
tional provision  (art.  1,  sec.  9,  cl.  5)  that  "No  tax  or  duty  shall 
be  laid  on  articles  exported  from  any  State."  The  judgment  below 
was  for  the  defendant.     (234  Fed.  125.) 

The  plaintiff  is  a  domestic  corporation  chiefly  engaged  in  buying 
goods  in  the  several  States,  shipping  them  to  foreign  countries,  and 
there  selling  them.  In  1914  its  net  income  from  this  business  was 
$30,173.66  and  from  orther  sources  $12,436.24.  An  income  tax  for 
that  year,  computed  on  the  aggregate  of  these  sums,  was  assessed 
against  it  and  paid  under  compulsion.  It  is  conceded  that  so  much 
of  the  tax  as  was  based  on  the  income  from  other  sources  was  valid, 
and  the  controversy  is  over  so  much  of  it  as  was  attributable  to  the 
income  from  shipping  goods  to  foreign  countries  and  there  selling 
them. 

The  tax  was  levied  under  the  act  of  October  3,  1913  (c.  16,  sec.  II, 
38  Stat.  166,  1T2),  which  provided  for  annually  subjecting  every 
domestic  corporation  to  the  payment  of  a  tax  of  a  specified  per 
centum  of  its  "  entire  net  income  arising  or  accruing  from  all  sources 
during  the  preceding  calendar  year."  Certain  fraternal  and  other 
corporations,  as  also  income  from  certain  enumerated  sources,  were 
specifically  excepted,  but  none  of  the  exceptions  included  the  plain- 
tiff or  any  part  of  its  income.  So,  tested  merely  by  the  terms  of  the 
act,  the  tax  collected  from  the  plaintiff  was  rightly  computed  on  its 
total  net  income.  But  as  the  act  obviously  could  not  impose  a  tax 
forbidden  by  the  Constitution,  we  proceed  to  consider  whether  the 
tax,  or  rather  the  part  in  question,  was  forbidden  by  the  constitu- 
tional provision  on  which  the  plaintiff  relies. 

The  sixteenth  amendment,  although  referred  to  in  argument,  has 
no  real  bearing  and  may  be  put  out  of  view.  As  pointed  out  in  recent 
decisions,  it  does  not  extend  the  taxing  power  to  new  or  excepted 
subjects,  but  merely  removes  all  occasion,  which  otherwise  might  ex- 
ist, for  an  apportionment  among  the  States  of  taxes  laid  on  income, 
whether  it  be  derived  from  one  source  or  another.  Brushaber  v. 
Union  Pacific  E.  E.  Co.,  240  U.  S.  1,  17-19;  Stanton  v.  Baltic 
Mining  Co.,  240  U.  S.  103,  112-113. 


SECT.  IV.]  PECK   V.  LOWE.  369 

The  Constitution  broadly  empowers  Congress  not  only  "to  lay 
and  collect  taxes,  duties,  imposts  and  excises,"  but  also  "  to  regulate 
commerce  with  foreign  nations."  So,  if  the  prohibitory  clause  in- 
voked by  the  plaintiff  be  not  in  the  way.  Congress  undoubtedly  has 
power  to  lay  and  collect  such  a  tax  as  is  here  in  question.  That 
clause  says  "  No  tax  or  duty  shall  be  laid  on  articles  exported  from 
any  State."  Of  course  it  qualifies  and  restricts  the  power  to  tax  as 
broadly  conferred.  But  to  what  extent?  The  decisions  of  this  court 
answer  that  it  excepts  from  the  range  of  that  power  articles  in  course 
of  exportation,  Turpin  v.  Burgess,  117  U.  S.  504,  507;  the  act  or 
occupation  of  exporting,  Brown  v.  Maryland,  12  Wheat.  419,  445; 
bills  of  huling  for  articles  being  exported,  Fairbanks  v.  United  States, 
181  U.  S.  2S'S;  charter  j)arties  for  the  carriage  of  cargoes  from 
State  to  foreign  ports.  United  States  v.  Hvoslef,  237  U.  S.  1 ;  and 
policies  of  marine  insurance  on  articles  being  exported  —  such  in- 
surance being  uniformly  regarded  as  "  an  integral  part  of  the  expor- 
tation '*  and  the  policy  as  "  one  of  the  ordinary  shipping  documents," 
Thames  and  Mersey  Ins.  Co.  v.  United  States,  237  U.  S.  19.  In 
short,  the  court  has  interpreted  the  clause  as  meaning  that  exporta- 
tion must  be  free  from  taxation,  and  therefore  as  requiring  "not 
simply  an  omission  of  a  tax  upon  the  articles  exported,  but  also  a 
freedom  from  any  tax  which  directly  burdens  the  exportation." 
Fairbanks  v.  United  States,  supra,  pp.  292-293.  And  the  court  has 
indicated  that  where  the  tax  is  not  laid  on  the  articles  themselves 
while  in  course  of  exportation  the  true  test  of  its  validity  is  whether 
it  "so  directly  and  closely"  bears  on  the  "process  of  exporting" 
as  to  be  in  substance  a  tax  on  the  exportation.  Thames  and  Mersey 
Ins.  Co.  V.  United  States,  supra,  p.  25.  In  this  view  it  has  been 
held  that  the  clause  does  not  condemn  or  invalidate  charges  or  taxes, 
not  laid  on  property  while  being  exported,  merely  because  they  affect 
exportation  indirectly  or  remotely.  Thus  a  charge  for  stamps  which 
each  package  of  manufactured  tobacco  intended  for  export  was  re- 
quired to  bear  before  removal  from  the  factory  was  upheld  in  Pace  v. 
Burgess,  92  U.  S.  372,  and  Turpin  v.  Burgess,  117  U.  S.  504;  and 
the  application  of  a  manufacturing  tax  on  all  filled  cheese  to  cheese 
manufactured  under  contract  for  export,  and  actually  exported,  was 
upheld  in  Cornell  v.  Coyne,  192  U.  S.  418.  In  that  case  it  was  said, 
page  427 :  "  The  true  construction  of  the  constitutional  provision  is 
that  no  burden  by  way  of  tax  or  duty  can  be  cast  upon  the  exportation 
of  articles,  and  does  not  mean  that  articles  exported  are  relieved 
from  the  prior  ordinary  burdens  of  taxation  which  rest  upon  all 
property  similarly  situated.  The  exemption  attaches  to  the  export 
and  not  to  the  article  before  its  exportation." 

While  fully  assenting  and  adhering  to  the  interpretation  which  has 
been  put  on  the  clause  in  giving  effect  to  its  spirit  as  well  as  its 
letter,  we  are  of  opinion  that  to  broaden  that  interpretation  would 
be  to  depart  from  both  the  spirit  and  letter. 

The  tax  in  question  is  unlike  any  of  those  heretofore  condemned. 
It  is  not  laid  on  articles  in  course  of  exportation  or  on  anything 
which  inherently  or  by  the  usages  of  commerce  is  embraced  in  ex- 


370  CEOCKEK  V.  ilALLEY.  [CHAP.   VH. 

portation  or  any  of  its  processes.  On  the  contrary,  it  is  an  income 
tax  laid  generally  on  net  incomes.  And  while  it  can  not  be  applied 
to  any  income  which  Congress  has  no  power  to  tax  (see  Stanton  v. 
Baltic  Mining  Co.,  supra,  p.  113),  it  is  both  nominally  and  actually 
a  general  tax.  It  is  not  laid  on  income  from  exportation  because  of 
its  source,  or  in  a  discriminative  way,  but  just  as  it  is  laid  on  other 
income.  The  words  of  the  act  are  "  net  income  arising  or  accruing 
from,  all  sources."  There  is  no  discrimination.  At  most,  exporta- 
tion is  affected  only  indirectly  and  remotely.  The  tax  is  levied  after 
exportation  is  completed,  after  all  expenses  are  paid  and  losses  ad- 
justed, and  after  the  recipient  of  the  income  is  free  to  use  it  as  he 
chooses.  Thus  what  is  taxed  —  the  net  income  —  is  as  far  removed 
from  exportation  as  are  articles  intended  for  export  before  the  expor- 
tation begins.  If  articles  manufactured  and  intended  for  export  are 
subject  to  taxation  under  general  laws  up  to  the  time  they  are  put  in 
course  of  exportation,  as  we  have  seen  they  are,  the  conclusion  is 
unavoidable  that  the  net  income  from  the  venture  when  completed, 
that  is  to  say,  after  the  exportation  and  sale  are  fully  consummated, 
is  likewise  subject  to  taxation  under  general  laws.  In  that  respect  the 
status  of  the  income  is  not  different  from  that  of  the  exported  articles 
prior  to  the  exportation. 

For  these  reasons  we  hold  that  the  objection  urged  against  the 
tax  is  not  well  grounded. 

Judgment  affirmed. 


CROCKEE  V.  MALLEY. 
Supreme  Couet  of  the  United  States.    1919. 

[Reported  249  U.  8.  223.] 

Holmes,  J.  This  is  an  action  to  recover  taxes  paid  under  protest 
to  the  collector  of  internal  revenue  by  the  petitioners,  the  plaintiffs. 
The  taxes  were  assessed  to  the  plaintiffs  as  a  joint-stock  association 
within  the  meaning  of  the  income  tax  act  of  October  3,  1913  (c.  16, 
sec.  2,  G.  (a),  38  Stat.  114,  166,  172),  and  were  levied  in  respect  of 
dividends  received  from  a  corporation  that  itself  was  taxable  upon 
its  net  income.  The  plaintiffs  say  that  they  were  not  an  association 
but  simply  trustees,  and  subject  only  to  the  duties  imposed  upon 
fiduciaries  by  section  2,  D.  The  Circuij;  Court  of  Appeals  decided 
that  the  plaintiffs,  together,  it  would  seem,  with  those  for  whose 
benefit  they  held  the  property,  were  an  association,  and  ordered  judsr- 
ment  for  the  defendant,  reversinfj  the  judgment  of  the  District 
Court.     (250  Fed.  817.) 

The  facts  are  these :  A  Maine  paper-manufacturing  corporation 
with  eiglit  sliareholders  liad  its  mills  on  the  Nashua  Eiver,  in  Massa- 
chusetts, and  owned  outlying  land  to  protect  the  river  from  pollution. 
In  1912  a  corporation  was  formed  in  Massachusetts.  The  Maine 
corporation  conveyed  to  it  seven  mills  and  let  to  it  an  eighth  that 
was  in  process  of  construction,  together  with  the  outlying  lands  and 


SECT.  IV.]  CllOCKEli  V.  MALLET.  371 

tenements,  on  a  long  lease,  receiving  the  stock  of  the  Massachusetts 
corporation  in  loturn.  The  Maine  corporati<ni  tiien  transferred  to 
the  plaintill's  as  trustees  the  fee  of  the  property,  subject  to  lease*  left 
the  Massaciiusetts  stock  in  llieir  hands,  and  was  dissolved.  By  the 
declaration  of  trust  the  phiiiitill's  declared  that  they  held  tlie  real 
estate  and  all  other  property  at  any  time  received  by  them  there- 
under, subject  to  the  provisions  thereof,  "  for  the  benefit  of  the  cestui 
que  trusts  (who  shall  be  trust  beneliciaries  only,  without  partner- 
ship, associate,  or  other  relation  whatever  inter  sese)  "  upon  trust  to 
convert  the  same  into  money  and  distribute  the  net  proceeds  to  the 
persons  then  holding  the  trustees'  receipt  certificates  —  the  time  of 
distribution  being  left  to  the  discretion  of  the  trustees,  hut  not  to 
be  postponed  beyond  the  end  of  20  years  after  the  death  of  s{)ecined 
persons  then  living.  In  the  meantime  the  trustees  were  to  have  the 
powers  of  owners.  They  were  to  distribute  what  they  determined  to 
be  fairly  distributable  net  income  according  to  the  interests  of  the 
cestui  que  trusts  but  could  apply  any  funds  in  their  hands  for  the 
repair  or  development  of  the  property  held  by  them,  or  the  acquisi- 
tion of  other  property,  pending  conversion  and  distribution.  The 
trust  was  explained  to  be  because  of  the  determination  of  the  Maine 
corporation  to  dissolve  without  waiting  for  the  final  cash  sale  of  its 
real  estate,  and  was  declared  to  be  for  the  benefit  of  the  eight  share- 
holders of  the  Maine  c<)in])any  who  were  to  receive  certificates  subject 
to  transfer  and  subdivision.  Then  followed  a  more  detailed  statement 
of  the  power  of  the  trustees  and  provision  for  their  compensation, 
not  exceeding  1  per  cent  of  the  gross  income  unless  with  the  written 
consent  of  a  majority  in  interest  of  the  cestui  que  trusts.  A  similar 
consent  was  required  for  the  filling  of  a  vacancy  among  the  trustees 
and  for  a  modification  of  the  terms  of  the  trust.  In  no  other  matter 
had  the  beneficiaries  any  control.  The  title  of  the  trust  was  fixed  for 
convenience  as  the  Massachusetts  Realty  Trust. 

The  declaration  of  trust  on  its  face  is  an  ordinary  real  estate  trust 
of  the  kind  familiar  in  Massachusetts,  unless  in  the  particular  that 
the  trustees'  receipt  provides  that  the  holder  has  no  interest  in  any 
specific  property  and  that  it  purports  only  to  declare  the  holder  en- 
titled to  a  certain  fraction  of  the  net  proceeds  of  the  property  when 
converted  into  cash  "  and  meantime  to  income."  The  only  property 
expressly  mentioned  is  the  real  estate  not  transferred  to  the  Massa- 
chusetts corporation.  Although  the  trustees  in  fact  have  held  the 
stock  of  that  corporation  and  have  collected  dividends  upon  it,  their 
doing  so  is  not  contemplated  in  terms  by  the  instrument.  It  does 
not  appear  very  clearly  that  the  eight  Maine  sliarebolders  might  not 
liave  demanded  it  had  they  been  so  minded.  The  function  of  the 
trustees  is  not  to  manage  tlie  mills  but  simply  to  collect  the  rents  and 
income  of  such  property  as  may  be  in  their  liands.  with  a  large  dis- 
cretion in  the  application  of  it.  but  with  a  recocfnition  that  the  re- 
ceipt holders  are  entitled  to  it  subject  to  tlie  exercise  of  the  powers 
confided  to  the  trustees.  In  fact,  the  whole  income,  less  taxes  and 
similar  expenses,  hasibeen  paid  over  in  due  proportion  to  the  holders 
r.f  the  receipts. 


372  CROCKER  V.  MALLEY.  [CHAP.    VII. 

There  can  be  little  doubt  that  in  Massachusetts  this  arrangement 
TToiild  be  held  to  create  a  trust  and  nothing  more.  "  The  certificate 
holders  .  .  .  are  in  no  way  associated  together  nor  is  there  any  pro- 
vision in  the  [instrument  ]  for  any  meeting  to  be  held  by  them.  The 
only  act  which  (under  the  [declaration  of]  trust)  they  can  do  is  to 
consent  to  an  alteration  ...  of  the  trust ''  and  to  the  other  matters 
that  we  have  mentioned.  They  are  confined  to  giving  or  withholding 
assent,  and  the  giving  or  withholding  it  "  is  not  to  be  had  in  a 
meeting  but  is  to  be  given  by  them  individually."  "  The  sole  right 
of  the  cestuis  que  trust  is  to  have  the  property  administered  in  their 
interest  by  the  trustees,  who  are  the  masters,  to  receive  income 
while  the  trust  lasts,  and  their  share  of  the  corpus  when  the  trust 
comes  to  an  end."  Williams  v.  Milton,  215  Mass.  1,  10,  11;  lb.,  8, 
The  question  is  whether  a  different  view  is  required  by  the  terms  of 
the  present  act.  As  by  D,  above  referred  to,  trustees  and  associations 
acting  in  a  fiduciary  capacity  have  the  exemption  that  individual 
stockholders  have  from  taxation  upon  dividends  of  a  corporation 
that  itself  pays  an  income  tax,  and  as  the  plaintiffs  undeniably  are 
trustees,  if  they  are  to  be  subjected  to  a  double  liability  the  language 
of  the  statute  must  make  the  intention  clear.  Gould  v.  Gould,  245 
U.  S.  151,  153;  United  States  v.  Isham,  17  Wall.  496,  504. 

The  requirement  of  G  (a)  is  that  the  normal  tax  thereinbefore  im- 
posed upon  individuals  shall  be  paid  upon  the  entire  net  income  ac- 
cruing from  all  sources  during  the  preceding  year  "  to  every  corpo- 
ration, joint-stock  company  or  association,  and  every  insurance 
company,  organized  in  the  United  States,  no  matter  how  created  or 
organized,  not  including  partnerships."  The  trust  that  has  been  de- 
scribed would  not  fall  under  any  familiar  conception  of  a  joint-stock 
association,  whether  formed  under  a  statute  or  not.  Smith  v.  An- 
derson, 15  Ch.  D.  247,  273,  274,  277,  282.  Eliot  v.  Freeman,  220 
U.  S.  178,  186.  If  we  assume  that  the  words  "no  matter  how 
created  or  organized "  apply  to  "  association "  and  not  only  to 
"insurance  company,"  still  it  would  be  a  wide  departure  from 
normal  usage  to  call  the  beneficiaries  here  a  joint-stock  association 
when  they  are  admitted  not  to  be  partners  in  any  sense,  and  when 
they  have  no  joint  action  or  interest  and  no  control  over  the  fund. 
On  the  other  hand  the  trustees  by  themselves  can  not  be  a  joint- 
stock  association  within  the  meaning  of  the  act  unless  all  trustees 
with  discretionary  powers  are  such,  and  the  special  provision  for 
trustees  in  D  is  to  be  made  meaningless.  We  perceive  no  ground 
for  grouping  the  two  —  beneficiaries  and  trustees  —  together,  in 
order  to  turn  them  into  an  association,  by  uniting  their  contrasted 
functions  and  powers,  although  they  are  in  no  proper  sense  asso- 
ciated. It  seems  to  be  an  unnatural  perversion  of  a  well-known  in- 
stitution of  the  law. 

We  do  not  see  either  that  the  result  is  affected  by  any  technical 
analysis  of  the  individual  receipt  holder's  rights  in  the  income  re- 
ceived by  the  trustees.  The  description  most  in  accord  with  what 
has  been  the  practice  would  be  that,  as  the  receipts  declare,  the 
holders,    until    distribution    of    the   capital,   were   entitled   to   the 


SECT.   IV. J       CHICAGO  TITLE  &   TKUST   CO.    I'.   SMIETANKA. 


income  of  the  fund  subject  to  an  unexercised  power  in  the  trustees 
in  tlieir  reasonable  discretion  to  divert  it  to  the  improvement  of  the 
capital.  But  even  if  it  were  said  that  the  receipt  holders  were  not 
entitled  to  the  income  as  such  until  they  got  it,  we  do  not  discern 
how  that  would  turn  them  into  a  Joint-stock  company.  Moreover 
the  receipt  liolders  did  get  it,  ami  the  question  is  what  portion  it 
wa.s  the  duty  of  the  trustees  to  witidiold. 

We  presume  that  the  taxation  of  corporations  and  joint-stock 
companies  upon  dividends  of  corporations  that  themselves  pay  the 
income  tax  was  for  the  purpose  of  discouraging  combinations  of  the 
kind  now  in  disfavor,  by  which  a  corporation  holds  controlling  in- 
terests in  other  corporations  which  in  their  turn  may  control  others, 
and  so  on,  and  in  this  way  concentrates  a  power  that  is  disapproved. 
There  is  nothing  of  that  s<M-t  here.  Upon  the  whole  case  we  are  of 
opinion  that  the  statute  fails  to  show  a  clear  intent  to  subject  the 
dividends  of  the  Massachusetts  corporation's  stock  to  the  extra  tax 
imposed  by  G  (a). 

Our  view  upon  the  main  question  opens  a  second  one  upon  which 
the  Circuit  Court  of  Appeals  did  not  have  to  pass.  The  District 
Court,  while  it  found  for  the  plaintiffs,  ruled  that  the  defendant  was 
entitled  to  retain  out  of  the  sum  received  by  him  the  amount  of  the 
tax  that  they  should  have  paid  as  trustees.  To  this  the  plaintiffs 
took  a  cross  writ  of  en-or  to  the  Circuit  Court  of  Appeals.  There  can 
be  no  question  that  although  tlie  plaintiffs  escape  the  larger  liability, 
there  Avas  probable  cause  for  the  defendant's  act.  The  Commissioner 
of  Internal  Revenue  rejected  the  plaintiff's  claim,  and  the  statute 
does  not  leave  the  matter  clear.  The  recovery  therefore  will  be  from 
the  United  States.  (I?ev.  Stats.,  sec.  989.)  The  plaintiffs,  as  they 
themselves  alleged  in  their  claim,  were  the  persons  taxed,  whether 
they  were  called  an  association  or  trustees.  They  were  taxed  too 
much.  If  the  United  States  retains  from  the  amount  received  by  it 
the  amount  that  it  should  have  received,  it  can  not  recover  that  sum 
in  a  subsequent  suit. 

Judgment  of  the  Circuit  Court  of  Appeals  reversed;  judgment 
of  the  District  Court  affirmed. 


CHICAGO  TITLE  &  TRUST  CO.  v.  SMIETAITKA. 
DiSTKiCT  Court  of  the  Uxited  States.     1921. 

[Reported  275  Fed.  60.] 

Page.  District  Judge.  Persons  owning  capital  stock  of  five  street 
railways  in  Chicago,  desiring  to  effect  a  unitary  control  of  the  prop- 
erties, executed  the  agreement  out  of  which  grows  the  question  here, 
viz. :  Did  that  agreement  create  a  joint-stock  company  or  association, 
taxable  under  section  II,  G  (a)  of  the  Federal  Revenue  Act  of  1913? 
Such  a  tax  was  paid  bv  the  plaintiff  under  protest,  and  it  brings  this 
(and  four  similar  suits)  against  the  defendant,  a  former  internal- 


374  CHICAGO  TITLE  <fe  TRUST  CO.  V.  SMIETANKA.  [CHAP.    VII. 

revenue  collector,  to  recover  the  money  paid  on  the  ground  that  it  was 
an  illegal  tax. 

The  question  arises  upon  a  demurrer  to  the  declaration. 

It  is  strongly  urged  upon  the  court  that  this  case  presents  a  trust 
similar  to  what  is  known  as  the  Massachusetts  Trust,  and  that  it 
comes  within  the  purview  of  and  is  governed  hy  Crocker  v.  Malley, 
249  U.  S.  223.  However,  I  find  that  it  has  features  which  show 
it  to  be  quite  different  from  the  Crocker  case.  The  Supreme  Court 
in  that  case  said: 

"The  trust  that  has  been  described  would  not  fall  within  any 
familiar  conception  of  a  joint-stock  association." 

And 

"  If  we  assume  that  the  words  '  no  matter  how  created  or  organ- 
ized' apply  to  'association'  and  not  only  to  'insurance  company,' 
still  it  would  be  a  wide  departure  from  nonnal  usage  to  call  the  bene- 
ficiaries here  a  joint-stock  association  when  they  are  admitted  not  to 
be  partners  in  any  sense,  and  when  they  have  no  joint  action  or  interest 
and  no  control  over  the  fund.  On  the  other  hand,  the  trustees  by 
themselves  can  not  be  a  joint-stock  association  within  the  meaning  of 
the  act  unless  all  trustees  with  discretionary  powers  are  such  .  .  .  We 
perceive  no  ground  for  grouping  the  two  —  beneficiaries  and  trustees 
—  together  in  order  to  turn  them  into  an  association  by  uniting  their 
contrasted  functions  and  powers,  although  they  are  in  no  proper 
sense  associated." 

In  Eliot  V.  Freeman,  220  U.  S.  186,  the  court  said : 

The  language  of  the  act  of  1909,  "now  or  hereafter  organized 
under  the  laws  of  the  United  States,"  imports  an  organization  de- 
riving power  from  statutory  enactment. 

Section  38  of  the  act  of  1909  reads: 

That  every  corporation,  joint-stock  company,  or  association  or- 
ganized for  profit  and  having  a  capital  stock  represented  by  shares, 
and  every  insurance  company,  now  or  hereafter  organized  under  the 
laws  of  the  United  States,  or  of  any  State  or  Territory  of  the  United 
States,  or  under  the  acts  of  Congress  applicable  to  Alaska,  etc.,  shall 
be  subject  to  pay  annually,  .  .  . 

The  act  of  1913  reads: 

That  the  normal  tax  .  .  .  shall  be  levied,  assessed,  and  paid  annu- 
ally upon  the  entire  net  income  arising  or  accruing  .  .  .  during  the 
preceding  calendar  year  to  every  corporation,  joint-stock  company, 
or  association,  and  every  insurance  company  organized  in  the  United 
States,  no  matter  how  created  or  organized,  not  including  partner- 
ships. 

It  is  contended  that  the  words  "no  matter  how  organized"  in  the 
act  of  1913  relate  to  insurance  companies  only,  but  the  court  is  of 
the  opinion  that  those  words  relate  back  to  the  words  "every  corpo- 
ration, joint-stock  company,  or  association,"  so  that  what  is  meant 


SECT.  IV.]      CHICAGO  TITLE  &  TEDST  CO.  V.   SMIETANKA.     375 

is  that  all  siuli  concorns   (not  including  partnerfthip)   are  included 
and  are  taxable.     Eliot  v.  Freeman,  supra. 

There  are  material  dill'erences  heivveen  the  su-callt-d  trust  in  this 
case  and  the  trust  in  Crocker  v.  Mallty.  The  trustees  here,  excejjt  lor 
certain  fixed  tilings,  are  not  principals  at  all,  but  are  mere  agents  of 
the  committee  hereinaltcr  referred  to.  The  parties  who  conceived 
and  drew  up  the  agreement  in  question  simply  built  up  an  organiza- 
tion by  the  use  of  language  that  reads  in  many  respects  much  like  the 
old  corporation  law  of  Illinois.  They  superimposed  that  organiza- 
tion upon  the  f(jur  or  five  corporations  owning  the  street  railway 
system  of  the  city  of  Chicago  by  phicing  the  legal  title  to  the  capital 
stock  of  tiiose  corporations  in  the  trustees  named,  who  are  to  do  cer- 
tain specified  things  only,  and  by  providing  for  a  committee,  which 
controls  even  the  power  of  the  trustees  to  vote  the  capital  stock  of 
the  street  railway  companies.  This  committee  is  elected  by  what  is 
called  participating  shareholders,  who  hold  certificates  of  common 
and  preferred  participating  shares  issued  by  the  trustees  in  lieu  of 
the  capital  stocks  of  the  corporations.  The  whole  agreement  is  shot 
througli  with  provisions  for  control  by  the  committee,  particularly 
upon  page  25  — 

And  from  time  to  time  the  trustees  may  give  proxies  to  any  person 
or  persons  to  vote  sucli  stock ;  but  in  voting  upon  any  of  such  stock 
the  trustees  shall  follow  the  directions  or  instructions,  if  any,  that 
may  be  given  to  the  trustees  by  the  committee. 

And  again,  on  page  30,  where  it  undertakes  to  enumerate  the 
powers  of  the  trustees,  they  use  this  language  — 

Subject  to  any  rights  of  the  trustees  of  the  said  collateral  trust 
indenture  dated  January  3,  1910,  as  specified  therein,  and  subject 
to  the  terms  of  the  written  approval  or  consent  of  the  committee  in 
any  case  where  under  the  terms  of  this  trust  agreement  such  approval 
or  consent  is  authorized  or  required,  the  trustees  shall  have  such 
power,  etc. 

Again  — 

To  invest  at  any  time  .  .  .  any  sum  or  sums  .  .  .  which  the 
committee  may  approve. 

And  again,  in  (;'),  to  — 

Vote  upon  any  of  the  shares,  constituting  any  part  of  the  deposited 
securities,  in  favor  of  any  lawful  consolidation,  merger,  or  reorgan- 
ization of  the  properties,  franchises,  or  shares  of  any  of  the  companies 
.  .  .  upon  such  terms  and  conditions  as  shall  be  approved  by  both 
the  committee  and  the  trustees. 

Tn  Crocker  v.  ^lalley,  the  Supreme  Court  does  not  undertake  to 
say  whothor  there  could  be  such  a  thing  as  an  association  not  organ- 
ized under  some  law;  but  I  am  of  the  opinion  that  there  can  he  such 
an  association  and  that  the  organization  here  shown  is  witliin  the 
statute. 


376  TAX    COMMISSIONER    r.    PUTNAM.  [cHAP.    VII. 

It  is  claimed  by  counsel  that  if  any  organization  ever  becomes  an 
association  it  thereby  necessarily  becomes  a  partnership,  but  there 
are,  in  my  opinion,  certain  limitations  and  conditions  that  prevent 
the  agreement  here  from  creating  an  ordinary  partnership. 

The  demurrer  is  sustained. 


TAX  C0MMISSI0:N"EE  v.  PUTNAM. 
Supreme  Judicial  Court  of  Massachusetts.     1917. 

[Reported  227  Mass.  522.] 

EuGG.  C.  J.  The  Forty-fourth  Amendment  to  the  Constitution 
of  this  Commonwealth,  approved  and  ratified  by  the  people  in  No- 
vember, 1915,  is  in  these  words:  "Full  power  and  authority  are 
hereb}^  given  and  granted  to  the  General  Court  to  impose  and  levy 
a  tax  on  income  in  the  manner  hereinafter  provided.  Such  tax 
may  be  at  different  rates  upon  income  derived  from  different  classes 
of  property,  but  shall  be  levied  at  a  uniform  rate  throughout  the 
Commonwealth  upon  incomes  derived  from  the  same  class  of  prop- 
erty. The  General  Court  may  tax  income  not  derived  from  property 
at  a  lower  rate  than  income  derived  from  property,  and  may  grant 
reasonable  exemptions  and  abatements.  Any  class  of  property  the 
income  from  which  is  taxed  under  the  provisions  of  this  article 
may  be  exempted  from  the  imposition  and  levying  of  proportional 
and  reasonable  assessments,  rates  and  taxes  as  at  present  authorized 
by  the  Constitution.  This  article  shall  not  be  construed  to  limit 
the  power  of  the  General  Court  to  impose  and  levy  reasonable  duties 
and  excises."  The  inquiry  raised  on  this  record  chiefly  concerns 
the  meaning  of  "  income  "  as  that  word  is  used  in  the  grant  of  power 
to  the  General  Court  to  "  impose  and  levy  a  tax  on  income." 

The  Constitution  of  Massachusetts  is  a  frame  of  government  for 
a  sovereign  power.  It  was  designed  by  its  framers  and  accepted 
by  the  people  as  an  enduring  instrument,  so  comprehensive  and 
general  in  its  terms  that  a  free,  intelligent  and  moral  body  of 
citizens  might  govern  themselves  under  its  beneficent  provisions 
through  radical  changes  in  social,  economic  and  industrial  condi- 
tions. It  declares  only  fundamental  principles  as  to  the  form  of 
government  and  the  mode  in  which  it  shall  be  exercised.  Certain 
great  powers  are  conferred  and  some  limitations  as  to  their  exercise 
are  established.  The  original  Constitution  and  all  its  Amendments 
together  form  one  instrument.  It  is  to  be  interpreted  in  the  light 
of  the  conditions  under  which  it  and  its  several  parts  were  framed, 
the  ends  which  it  was  designed  to  accomplish,  the  benefits  which  it 
was  expected  to  confer,  and  the  evils  which  it  was  hoped  to  remedy. 
It  is  a  grant  from  the  sovereign  people  and  not  the  exercise  of  a 
delegated  power.  It  is  a  statement  of  general  principles  and  not 
a  specification  of  details.     Amendments  to  such  a  charter  of  gov- 


SECT.    IV.]  TAX    COMMISSIONER    V.    PUTXAM.  377 

ernment  ought  to  be  construed  in  the  same  spirit  and  according 
to  the  same  rules  as  the  original.  It  is  to  be  interpreted  as  the  Con- 
stitution of  a  State  and  not  as  a  statute  or  an  ordinary  piece  of 
legislation.  Its  words  must  be  given  a  construction  adapted  to  carry 
into  elFect  its  purpose. 

The  cases  at  bar  raise  four  main  questions : 

(1)  Are  excesses  of  gains  over  losses  in  the  purchase  and  sale 
of  intangible  personal  property  by  one  not  engaged  in  the  business 
of  dealing  in  such  property  taxable  as  income? 

(2)  Are  gains  derived  from  the  sale  of  rights  to  subscribe  for 
new  shares  of  stock  to  be  issued  by  an  existing  corporation  taxable 
as  income? 

(3)  Is  a  stock  dividend,  declared  and  issued  by  a  corporation 
after  the  statute  went  into  effect,  out  of  an  accumulation  of  profits 
earned  and  invested  in  its  business  before  the  statute  was  enacted, 
taxable  as  income? 

(4)  Is  a  cash  dividend  declared  and  paid  after  the  statute  went 
into  effect  out  of  prolits  earned  before  the  statute  took  efl'ect,  tax- 
able as  income? 

1.  AVe  proceed  to  the  discussion  of  the  first  mam  question. 

Pursuant  to  the  grant  of  power  given  bv  the  Forty-fourth  Amend- 
ment, tlie  income  tax  law,  St.  1916,  c.  269,  was  enacted.  It  is  provided 
by  §  5  that  "  Income  of  the  following  classes  received  by  any  in- 
habitant of  this  Commonwealth,  during  the  calendar  year  prior  to 
the  assessment  of  the  tax,  shall  be  taxed  as  follows:  .  .  .  (c)  The 
excess  of  the  gains  over  the  losses  received  by  the  taxpayer  from  the 
purchases  or  sales  of  intangible  personal  property,  whetlier  or  not 
the  said  taxpayer  is  engaged  in  the  business  of  dealing  in  such  prop- 
erty, shall  be  'taxed  at  the  rate  of  three  per  cent  per  annum.  .  .  ." 
The  act  took  effect  so  as  to  include  the  income  of  the  calendar  year 
1916.  The  tax  commissioner  issued  a  bulletin  to  be  used  in  the  prep- 
aration of  income  tax  returns,  giving  the  "  Approved  Valuation  "  of 
stocks  on  Januarv  1,  1916.  Xo  question  has  been  raised  as  to  the 
accuracy  of  this  valuation.  By  the  express  terms  of  §  7  of  the  in- 
come tax  act  the  value  of  the 'intangible  personal  property  on  Jan- 
uary 1,  1916,  if  owned  by  the  taxpayer  on  that  date,  and  its  value 
on  "the  date  acquired  in  "the  event  of  purchase  after  that  date,  is 
made  the  basis  of  computation  for  determining  gains  and  losses. 

The  defendant  Putnam  on  January  1,  1916,  owned  certain  shares 
of  stock  in  corporations,  which  he  "sold  during  the  calendar  year 
1916  at  sums  in  excess  of  the  prices  given  in  the  "Approved  Valua- 
tion" bulletin,  so  that  the  net  profits  realized  exceeded  his  total 
losses.  He  also  bought  certain  stocks  during  the  year  1916  and 
sold  them  during  the  same  vear  at  a  profit.  It  is  contended  on  his 
behalf  that  these  gains  do  not  constitute  "  income"  within  the  mean- 
ing of  that  word  in  the  Fortv-fourth  Amendment. 

The  Forty-fourth  Amendment  was  adopted  by  the  General  Court 
and  by  it  proposed  to  the  people  after  prolonged  study  and  at  the 
end  of  various  efforts  under  the  ,£rrant  of  power  to  tax  contained 
in  c.  1,  §  1,  art.  -1  of  the  Constitution  to  establish  a  general  and 


378  TAX  COMMISSIONER  V.   PUTNAM.  [ciIAP.    VII. 

extensive  income  tax.  Numerous  resolves  of  the  Legislature  have 
been  passed  from  time  to  time  extending  over  many  years,  providing 
for  the  investigation  of  the  subject  of  taxation  by  special  commis- 
sions and  committees.  The  reports  from  these  sources  were  volu- 
minous and  most,  if  not  all  of  tliem,  suggested  some  form  of  tax 
on  incomes  from  investments.  Advisory  opinions  to  the  General 
Court  or  one  of  its  branches  by  the  justices  of  this  court  touching 
particular  phases  of  the  matter  are  to  be  found  in  Opinions  of  the 
Justices,  195  Mass.  607,  208  Mass.  616,  220  Mass.  613.  All  the 
schemes  thus  proposed  either  were  not  acceptable  to  the  Legislature 
or  appeared  to  be  in  conflict  with  grant  of  the  power  to  tax  contained 
in  the  Constitution.  It  became  necessary  to  declare  unconstitutional 
one  statute  of  this  general  nature.  Perkins  v.  Westwood,  226  Mass. 
268.  The  adoption  and  ratification  of  the  Forty-fourth  Amendment 
under  these  circumstances  renders  imperative  the  inference  that 
the  word  "  income "  was  there  used  with  the  purpose  of  setting  at 
rest  any  doubt  about  the  full  and  complete  power  of  the  Legislature 
to  deal  with  "  income "  as  a  subject  of  taxation.  That  word  was 
employed  to  express  a  comprehensive  idea.  It  is  not  to  be  given 
a  narrow  or  constricted  meaning.  It  must  be  interpreted  as  includ- 
ing every  item  which  by  any  reasonable  understanding  can  fairly 
be  regarded  as  income.  One  purpose  of  the  amendment  was  to  avoid 
with  reference  to  anything  rightly  describable  as  "  income,"  the 
requirement  of  c.  1,  §  1,  art.  4  of  the  Constitution,  that  property 
taxes  must  be  "proportional  .  .  .  upon  all  .  .  .  estates  lying" 
within  the  Commonwealth,  and  to  enable  income  to  be  taxed  at  a  rate 
not  "  proportional "  to  all  other  property  and  to  exempt  from  other 
taxation  the  property  from  which  such  income  arises. 

"  Income  "  like  most  other  words  has  different  meanings  depend- 
ent upon  the  connection  in  which  it  is  used  and  the  result  intended 
to  be  accomplished.  One  purpose  of  its  use  in  the  Forty-fourth 
Amendment  doubtless  was  to  distinguish  property  flowing  out 
of  an  original  investment  from  that  which  in  its  inherent  nature 
is  permanent  investment,  already  subject  to  the  ample  taxing  poM^er 
of  c.  1,  §1,  art.  4.  But  that  is  not  its  exclusive  signification  in  the 
amendment.  In  its  ordinary  and  popular  meaning,  "income"  is 
the  amount  of  actual  wealth  which  comes  to  a  person  during  a  given 
period  of  time.  At  any  single  moment  a  person  scarcely  can  be  said 
to  have  income.  The  word  in  most,  if  not  all,  connections  involves 
time  as  an  essential  element  in  its  measurement  or  definition.  It 
thus  is  differentiated  from  capital  or  investment,  which  commonly 
means  the  amount  of  wealth  which  a  person  has  on  a  fixed  date. 
Income  may  be  derived  from  capital  invested  or  in  use,  from  labor, 
from  the  exercise  of  skill,  ingenuity  or  sound  jud.gment,  or  from 
a  combination  of  any  or  all  of  these  factors.  One  of  the  most  recent 
of  its  definitions  is  "the  gain  derived  from  capital,  from  labor,  or 
from  both  combined."  Stratton's  Independence,  I^td.  v.  Howbert, 
231  TJ.  S.  399,  415.  Doubtless  it  would  be  difficult  to  give  a  com- 
prehensive definition  which  can  be  treated  as  universal  and  final. 
It  is  common  speech  for  one  to  say  that  he  made  so  much  money 


SECT.    IV.]  TAX    COMMISSIONER    V.    PUTNAM.  J37U 

during  a  particular  twelve  months  and  to  mean  thereby  that  he  has 
iiKTcased  his  woallh  to  that  amount.  Such  a  remark  made  by  one 
not  engaged  permanently  or  intermittently  in  business  or  any  gain- 
ful occupation  naturally  means  that  by  casual  purchases  or  sales 
of  property  made  in  the  exercise  of  good  judgment  he  has  augmented 
the  total  value  of  his  pn)j)erty.  The  decisive  word  in  the  Forty- 
fourth  Amendment  is  "  income."  That  is  a  word  which  not  oidy  had 
been  much  discussed  by  legislators  and  in  the  press  in  connection 
with  taxation,  but  which  also  is  in  everyday  use.  'i'he  common 
meanings  attached  to  it  by  lexii()graj)hers,  therefore,  have  weight 
in  determining  what  the  people  may  be  supposed  to  have  thought 
its  signification  to  have  been  when  voting  for  the  amendment.  It 
is  defined  as  that  "gain  .  .  .  which  proceeds  from  labor,  business, 
or  property;  commercial  revenue  or  receipts  of  any  kind,  including 
wages  or  salaries,  the  proceeds  of  agriculture  or  commerce,  the  rent 
of  houses,  or  the  return  on  investments,"  and  also  as  "  The  amount 
of  money  coming  to  a  person  or  corporation  within  a  specified  time 
.  .  .  whether  as  payment  for  services,  interest,  or  profit  from  in- 
vestment." Its  usual  synonyms  are  gain,  profit,  revenue.  It  is 
used  in  this  sense  also  by  writers  upon  taxation  and  economics. 

The  gains  and  profits  made  as  a  result  of  carrying  on  a  business 
of  buying  and  selling  goods  had  been  held  to  be  taxable  as  income 
under  the  tax  law  long  before  the  adoption  of  tlie  Forty-fourth 
Amendment.  Wilcox  v.  County  Commissioners,  103  Mass.  544. 
It  there  was  recognized  that  such  income  might  accrue  in  part  from 
goods  purchased  before  the  period  of  time  for  which  the  income 
was  to  be  reckoned.  Gain  made  in  the  conduct  of  a  business  which 
consists  of  making  purchases  and  sales  generally  is  recognized  as 
income.  Of  course,  one  engaged  in  the  business  of  buying  and  sell- 
ing intangible  personal  property  was  equally  subject  to  taxation 
on  gains  derived  therefrom  under  the  law  as  it  was  before  1016. 
Such  incomes  had  been  taxed  for  many  years  immediately  before 
the  adoption  of  the  amendment.  It  hardly  can  be  thought  that  the 
people,  in  conferring  the  power  to  tax  incomes,  intended  to  per- 
petuate for  all  time  a  distinction  between  incomes  derived  from 
a  business  of  buying  and  selling  property,  on  the  one  side,  and  the 
profits  realized  by  one  not  engaged  in  such  business  but  occasionally 
and  casually  and  not  as  a  business  making  purchases  and  sales  of 
the  same  kind  of  property,  on  the  other  side,  and  to  grant  to  their 
representatives  authority  to  tax  the  one  and  to  deny  tliem  authority 
to  tax  the  other.  In  some  connections  profits  of  this  kind  have  been 
hold  to  be  income.    ParVs  estate,  173  Penn.  St.  190. 

The  federal  income  tax  law  of  1913  may  be  presumed  to  have 
been  more  or  less  familiar  to  the  members  of  the  General  Court  and 
the  people  during  the  discussion  accompanying  the  adoption  of  the 
Fortv-fourth  Amendment.  The  phrase  of  that  law,  c.  16,  §  ?B  of 
the  Acts  of  Conirress,  approved  October  3,  1913,  (38  F.  S.'  Sts.  at 
Large,  167,)  is  significantly  brond  and  inclusive:  "The  net  income 
of  a  taxable  person  shall  include  gains,  profits,  and  income  derived 
from  .  .   .  dealings  in  property',  whether  real  or  personal,  growing 


380  TAX  COMMISSIONER  V.  PUTNAM.  [CHAP.    VII. 

out  of  the  ownership  or  use  of  or  interest  in  real  or  personal  prop- 
erty ...  or  gains  or  profits  and  income  derived  from  any  source 
whatever.'*  The  mind  of  the  ordinary  legislator  and  voter  would 
naturally  infer  from  these  words  that  gains  like  those  here  in  ques- 
tion would  be  subject  to  the  federal  income  tax.  That  act  was  passed 
under  the  Sixteenth  Amendment  to  the  United  States  Constitution 
which  authorized  a  tax  only  on  "  income."  It  is  matter  of  common 
Jcnowledge  that  under  the  federal  income  tax  act  an  income  tax 
'^\•as  levied  upon  gains  derived  from  purchases  and  sales  similar  to 
those  here  in  question,  and  that  the  right  to  do  so  was  asserted  by 
the  revenue  otficers  of  the  United  States.  Presumably  this  was 
known  by  the  members  of  the  Legislatures  of  1914  and  1915, 
by  which  the  Forty-fourth  Amendment  was  agreed  to,  and  by  the 
people  who  approved  and  ratified  it.  It  is  not  pertinent  to  inquire 
here  whether  that  interpretation  of  the  United  States  income  tax 
ultimately  will  be  sustained.  See  Gray  v.  Darlington,  15  Wall.  63; 
Gauley  Mountain  Coal  Co.  v.  Hays,  144  C.  C.  A.  408;  Lynch  v. 
Turrish,  236  Fed.  Eep.  653,  and  cases  cited  at  page  660.  Compare 
Stanton  v.  Baltic  Mining  Co.  240  U.  S.  103;  Von  Baumbach  v. 
Sargent  Land  Co.  242  U.  S.  503,  525;  Brushaber  v.  Union  Pacific 
Eailroad,  240  U.  S.  1.  The  relevant  fact  is  that  the  right  to  levy 
such  a  tax  on  gains  of  this  kind  as  an  income  tax  was  asserted  by 
the  federal  authorities  and  generally  acquiesced  in  by  the  taxpayer 
as  bearing  upon  what  scope  shall  be  given  to  the  word  "income" 
contemporaneously  used  in  the  Forty-fourth  Amendment. 

If  the  word  "incomes"  or  the  words  "gain,  profit  and  income" 
had  been  used,  it  hardly  would  be  contended  that  the  intendment 
of  the  amendment  was  not  comprehensive.  But  in  the  framing  of 
constitutions  words  naturally  are  employed  in  a  compendious  sense 
as  expressive  of  general  ideas  rather  than  of  the  fine  shades  of  close 
distinctions.  The  simple  and  dignified  diction  of  our  Constitution 
does  not  readily  lend  itself  to  technical  and  narrow  definition. 
Terse  statement  of  governmental  principles  in  plain  language,  and 
not  amplification  in  the  delicate  niceties  of  words,  characterizes  its 
composition. 

The  fair  and  almost  irresistible  conclusion  from  all  these  con- 
siderations is  that  the  word  "income"  in  the  Fortv'-fourth  Amend- 
ment has  a  generic  meaning  and  includes  gains,  profits  and  revenues. 

The  gains  received  from  sales  of  stocks  come  within  the  defini- 
tions of  "  income "  heretofore  stated.  They  are  derived  from  the 
application  of  sagacity  to  the  use  of  capital  in  making  purchases 
and  resales  at  an  advance.  The  transactions  could  not  he  carried 
out  except  by  the  use  of  capital  and  the  profit  is  derived  directly 
from  the  capital  in  combination  with  skill  in  selecting  the  time 
for  purchase  and  for  sale. 

It  is  true  that  in  some  other  connections  profits  and  gains  arising 
from  the  increase  in  value  of  investments  and  realized  by  sale  are 
treated  as  a  part  of  the  principal  and  not  as  income.  That  is  so  of 
trust  estates.  But,  as  has  been  pointed  out,  it  is  not  true  where 
business  is  conducted  which  consists  of  making  sales  and  purchases. 


SECT.    IV.]  TAX    COMMISSIONER   V.    PUTNAM.  381 

Williams  v.  Milton,  215  Mass.  1,  11.  Wilcox  v.  County  Commis- 
sioners, 103  Mass.  544. 

A  very  different  question  would  arise  if  the  attempt  were  made 
to  tax  as  income  to  increase  in  value  of  the  capital  investment  in 
intangibles  which  had  accrued  to  the  owner  from  a  date  of  purchase 
long  anterior  to  the  enactment  of  the  tax  act.  Such  a  construction 
of  a  statute  would  not  be  adopted  except  as  the  imperative  result 
of  unequivocal  words,  and  even  then  serious  questions  might  arise 
as  to  the  validity  of  such  an  act.  See  Gray  v.  Darlington,  15  Wall. 
63;  Bailey  v.  Railroad  Co.  106  U.  S.  109,  114;  McCoach  v.  Minehill 
&  Schuylkill  Haven  Railroad,  228  U.  S.  295,  300.  That  would  be 
an  attempt  to  tax  as  income  an  increment  in  value  of  the  capital 
investment  which  had  occurred  and  been  realized  in  possession  pre- 
vious to  the  taking  effect  of  the  tax  law.  It  might  be  regarded  as 
an  effort  to  convert  into  income  that  which  already  had  become 
capital.  See  Mitchell  Brothers  v.  Doyle,  225  Fed.  Rep.  437.  That 
is  not  the  situation  in  the  case  at  bar.  The  income  tax  act  accord- 
ing to  the  express  provisions  of  §  7  and  as  interpretecl,  by  the  com- 
missioner in  its  application  to  these  defendants,  is  to  be  levied  only 
on  such  increases  in  values  as  have  been  realized  l)y  sales  within  the 
year,  using  as  the  basis  of  value  in  instances  where  stock  was  owned 
by  the  taxpayer  on  January  1,  1916,  the  fair  cash  value  at  that  time. 
Thus  the  income  as  ascertained  for  tax  purposes  is  the  annual  in- 
come in  its  strict  sense.  It  is  a  direct  apportionment  of  the  incre- 
ment from  this  source  to  the  year  in  which  it  was  received  and 
converted  into  cash.  See  Doyle  v.  Mitchell  Brothers,  235  Fed.  Rep. 
686 ;  149  C.  C.  A.  106 ;  Biwabik  Mining  Co.  v.  United  States,  242 
Fed.  Rep.  9,  and  Cleveland,  Cincinnati,  Chicago  &  St.  Louis  Railway 
V.  United  States,  242  Fed.  Rep.  18,  each  decided  by  the  Circuit  Court 
of  Appeals  for  the  Sixth  Circuit  on  :May  8,  1917.  Therefore  no 
question  either  of  statute  interpretation  or  constitutionality  is 
raised  in  the  cases  at  bar  as  to  an  attempt  to  tax  gains  on  the 
value  of  property  which  have  not  been  realized  by  sale  and  which 
■would  be  known  in  common  speech  as  mere  paper  profits,  and  noth- 
ing to  that  point  is  here  decided. 

The  argument  against  the  validity  of  the  tax,  as  likely  to  cause 
confusion  in  keeping  accounts  of  trustees  and  others  and  in  making 
divisions  and  apportionments,  is  based  merely  on  convenience  and 
cannot  be  regarded  as  of  much  weight.  Illustrations  were  put  in 
argument  and  readilv  can  be  imagined  of  instances  where  hardship 
may  be  wrought  by  this  decision.  But  that  is  likely  to  be  true  of 
every  general  rule  of  law  and  particularly  of  tax  statutes. 

These  reasons  lead  to  the  conclusion  that  the  tax  upon  gains  in 
excess  of  losses  arising  from  the  sales  of  stock  during  the  year  1916 
is  a  tax  upon  income  and  not  upon  principle.    •  _ 

In  reaching  this  conclusion  we  are  not  unmindful  of  decisions 
of  other  jurisdictions  more  or  less  apparently  at  variance.  See  for 
example,' Grav  r.  Darlington,  15  Wall.  63:  Hudson  Bay  Co.  v. 
Stevens,  25  T.  L.  R.  709;  Tehran  (Johore)  Rubber  Syndicate,  Ltd. 
V.  Farmer,  47  Sc.  L.  Eep.  816;  L^^lch  v.  Turrish,  236  Fed.  Rep. 


382  TAX  COMMISSIONER  V.  PUTNAM.  [CHAP.    VII. 

653 ;  149  C.  C.  A.  649,  and  cases  there  collected ;  Lynch  v.  Hornby, 
236  Fed.  Eep.  661;  149  C.  C.  A.  657.  But  the  grounds  upon  which 
this  judgment  rests  are  such  as  to  render  unnecessary  a  critical  ex- 
amination, of  those  decisions.  They  relate  to  other  statutes  enacted 
under  constitutional  provisions  different  from  those  of  the  Forty- 
fourth  Amendment. 

The  word  ''  income  "  is  susceptible  of  a  meaning  sufficiently  broad 
to  include  gain  of  the  kind  and  from  the  sources  here  in  question. 
The  circumstances  under  which  the  Forty-fourth  Amendment  was 
adopted  are  of  persuasive  force  in  requiring  the  conclusion  that  it 
was  the  purpose  of  the  people  to  include  within  its  scope  everything 
that  by  reasonable  intendment  can  be  said  to  be  income. 

The  income  tax  act  does  not  violate  the  provisions  of  the  Forty- 
fourth  Amendment  so  far  as  concerns  this  item  of  income.  It  does 
not  levy  a  tax  at  a  different  rate  upon  incomes  derived  from  the 
same  class  of  property.  The  rate  levied  upon  gains  from  the  sales 
of  intangible  personal  property  is  three  per  cent,  §  5  (c),  while 
that  upon  the  dividends  from  stock  and  interest  on  bonds  and  notes 
is  six  per  cent,  §  2.  But  these  two  sources  of  income  do  not  belong 
to  the  same  class.  When  a  classification  is  made  of  property  for 
purposes  of  taxation,  the  question  is,  as  was  said  in  Nicol  v.  Ames, 
173  U.  S.  509,  521,  "whether  there  is  any  reasonable  ground  for 
it,  or  whether  it  is  only  and  simply  arbitrary,  based  upon  no  real 
distinction  and  entirely  unnatural."  A  classification  will  not  be 
declared  void  as  unreasonable  "  unless  it  was  plainly  and  grossly 
oppressive  and  unequal,  or  contrary  to  common  right."  Oliver  v. 
AYashington  Mills,  11  Allen,  268,  279,  The  tax  upon  interest  and 
dividends  is  levied  upon  a  return  which  comes  to  the  owner  of  the 
principal  security  without  further  effort  on  his  part.  The  tax  upon 
excess  of  gains  over  losses  in  the  purchases  and  sales  of  intangible 
personal  property  is  levied,  not  upon  income  derived  from  a  specific 
property  but  from  the  net  result  of  the  combination  of  several  fac- 
tors, including  the  capital  investment  and  the  exercise  of  good  judg- 
ment and  some  measure  of  business  sagacity  in  making  purchases 
and  sales.  Gain  derived  in  this  way,  to  express  it  in  "  summary  and 
comprehensive  form,"  "  is  the  creation  of  capital,  industry,  and 
skill."  Wilcox  V.  County  Commissioners,  103  Mass.  544.  It  is  not 
the  production  of  capital  alone  and  does  not  arise  solely  from  a 
simple  investment. 

The  question  was  somewhat  argued  at  the  bar  whether  the  tax 
authorized  by  the  Forty-fourth  Amendment  and  levied  by  the  in- 
stant statute  is  whollv  a  propertv  tax,  as  was  said  in  Opinion  of  the 
Justices,  220  Mass.  613,  623,  625,  Perkins  v.  Westwood,  226  Mass. 
268,  Pollock  V.  Farmers'  Loan  &  Trust  Co.  157  U.  S.  429,  581; 
s.  c.  158  U.  S.  601,  or  whether  in  some  aspects  and  applications  it 
may  be  an  excise.  Springer  v.  United  States,  102  TJ.  S.  586,  602, 
Brushaber  v.  Union  Pacific  Eailroad,  240  U.  S.  1,  16,  17,  Flint  v. 
Stone  Tracy  Co.  220  U.  S.  107,  150,  152,  Glasgow  v.  Eowse,  43  Mo. 
479,  491,  Waring  v.  Mayor  &  Aldermen  of  Savannah,  60  Ga.  93, 
100,  Drexel  &  Co.  v.  Commonwealth,  46  Penn.  St.  31,  40.    It  is  not 


SECT.    IV.]  TAX    COMMISSIONER  1^.    PUTNAM.  38o 

necessary  to  do  more  tlian  to  refer  to  t220  Mass.  623-627,  for  it  is 
plain  tliat  the  Fort^-lourth  Amendment  modilled  the  provisions  of 
c.  1,  §  1,  art.  4  of  the  Constitution,  to  the  effect  that  property  ta.\es 
must  be  proportional,  so  that  tlie  Legislature  now  ha.s  power  to  levy 
taxes  upon  whatever  rightly  may  be  held  to  be  "  income"  at  dill'erent 
rates  upon  income  derived  from  diiferent  classes  of  property,  pro- 
vided there  is  uniformity  in  rate  upon  incomes  from  the  same  classes 
of  property.  It  follows  lliat  in  this  connection  the  rule  stated  in 
Gleason  v.  McKay,  l.'i-i  Mass.  41!J,  and  O'Keeile  v.  Somerville,  1!)0 
Mass.  110,  to  the  elFect  that  no  valid  excise  can  be  imposed  upon 
the  exercise  of  a  natural  right,  has  no  relevancy. 

2.  The  second  question  is  whether  gains  derived  from  the  sale  of 
rights  to  subscribe  for  new  shares  of  stock  to  be  issued  by  a  corpora- 
tion are  taxable  as  income. 

The  respondent  Putnam  received  during  1916  proceeds  from  the 
sale  of  rights,  declared  in  that  year,  to  subscribe  to  shares  of  new 
stock  in  corporations  in  which  lie  was  a  stockholder  previous  to 
1916. 

The  same  reasons  which  already  have  been  stated,  as  to  the  right 
to  treat  gains  in  excess  of  losses  from  purchases  and  sales  of  intan- 
gible personal  property  as  subject  to  an  income  tax,  lead  to  the 
conclusion  that  gains  arising  from  the  sale  of  rights  to  subscribe 
for  new  stock  issued  by  corporations  may  also  be  treated  as  income 
by  the  General  Court  for  purposes  of  taxation  under  the  Forty- 
fourth  Amendment.  Such  rights  are  themselves  a  species  of  intan- 
gible property.  They  come  to  the  stockholder  as  a  gratuity.  They 
are  a  new  thing  of  value  which  he  did  not  possess  before.  The 
amount  for  which  he  sells  them  is  a  gain. 

In  the  management  of  trusts  as  between  a  life  tenant  and  remain- 
derman rights  to  subscribe  for  stock,  Atkins  v.  Albree,  12  Allen, 
359,  361,  Davis  v.  Jackson,  152  Mass.  58,  61,  and  stock  dividends, 
D'Ooge  v.  Leeds,  i;6  Mass.  558,  560,  Rand  v.  Hubbell,  115  Mass. 
461,  are  regarded  as  capital  and  not  as  income  in  this  Common- 
wealth. The  rule  of  this  Commonwealth,  to  the  effect  that  as  be- 
tween life  tenant  and  remainderman  stock  dividends  are  treated  as 
capital  and  not  as  income,  perhaps  may  have  grown  up  in  part  at 
least  by  reason  of  its  convenience  and  it  appears  to  be  widely  adopted. 
Gibbons  v.  Mahon,  136  U.  S.  549. 

But,  however  that  may  be,  it  is  manifest  that  there  is  no  inherent, 
necessary  and  immutable  reason  why  stock  dividends  should  always 
he  treated  as  capital.  This  is  apparent  because  in  several  jurisdic- 
tions th(?v  are  treated  either  in  whole  or  in  part  as  income  and  not 
as  capital.  Matter  of  Osborne,  209  TsT.  Y.  450.  (See  McLouth  v. 
Hunt,  154  N.  Y.  179;  Robertson  v.  de  Brulatour,  188  N.  Y.  301; 
Tx)wrv  V.  Farmers'  Loan  Sz  Trust  Co.  172  K.  Y.  137.)  Pratt  v. 
Douglas,  11  Stew.  516,  541.  Earp's  Appeal,  28  Penn.  St.  368.  Hoi- 
brook  V.  Holbrook,  74  N".  H.  201,  203,  204.  Pritchitt  v.  Nashville 
Trust  Co.  96  Tenn.  472.  Hite  v.  Hite,  93  Kv.  257.  Thomas  v. 
Gregg,  78  Md.  545.  Goodwin  r.  :NrcGaughey,  108  Minn.  248. 
Soehnlein  r.  Soehnlein,  146  "Wis.  330,  339.     The  same  is  true  of  our 


384  TAX  COMMISSIONER  V.   PUTNAM.  [cHAP.    VII. 

rule  (which  prevails  also  at  least  in  the  federal  and  English  courts, 
see  Gibbons  v.  Mahon,  136  U.  S.  549,  567;  Bouch  v.  Sproule,  12 
App.  Cas.  385)  to  the  effect  that  rights  to  subscribe  for  new  stock 
which  have  a  market  value  are  to  be  attributed  to  principal  and  not 
to  income.  Some  other  States  hold  the  value  of  such  rights  to  be 
income  and  not  principal.  VViltbank's  Appeal,  64  Penn.  St.  256. 
See  Lord  v.  Brooks,  52  N.  H.  73. 

It  seems  impossible  to  say,  when  a  kind  of  gain  is  in  many  States 
held  even  as  between  life  tenant  and  remainderman  to  be  income 
and  not  capital,  that  the  word  "income,"  used  in  an  amendment 
to  the  Constitution  adopted  for  the  express  purpose  of  enabling  a 
tax  to  be  levied  broadly  on  all  that  rightly  may  be  described  as  in- 
come, should  be  construed  as  excluding  such  gains  simply  because 
this  court  has  held  that  it  was  not  income  in  a  single  branch  of  law 
while  numerous  other  courts  have  held  the  contrary  even  upon  that 
point.  However  strong  such  an  argument  might  be  when  urged  as 
to  the  interpretation  of  a  statute,  it  is  not  of  prevailing  force  as  to 
the  broad  considerations  involved  in  the  interpretation  of  an  amend- 
ment to  the  Constitution  adopted  under  the  conditions  preceding 
and  attendant  upon  the  ratification  of  the  Forty-fourth  Amend- 
ment. 

The  rights  to  subscribe  for  stock,  when  sold  and  converted  into 
cash,  rightly  may  be  treated  as  taxable  as  a  gain  on  the  sale  of  in- 
tangibles under  §  5  (c)  of  the  income  tax  act.  These  rights  com- 
monly are  represented  by  certificates  and  pass  by  indorsement.  They 
are  a  species  of  intangible  property.  They  are  not  regarded  or- 
dinarily as  a  profit  from  the  prosecution  of  the  business,  but  are 
an  inherent  and  constituent  part  of  the  shares.  Atkins  v.  Albree, 
12  Allen,  359,  361.  Hyde  v.  Holmes,  198  Mass.  287,  293.  Their 
sale  resulted  from  an  exercise  of  judgment  to  that  effect  on  the  part 
of  the  stockholder.  They  are  indistinguishable  in  principle  from  a 
sale  of  the  stock  itself,  and  gains  derived  from  sales  of  such  rights 
fall  within  the  same  class  of  income.  The  statute  in  this  regard 
is  not  in  conflict  with  the  amendment. 

The  question  whether  rights  to  subscribe  for  stock,  which  are 
exercised  by  subscription,  are  taxable  as  income  is  not  raised  on  this 
record  and  is  not  decided. 

3.  The  third  question  is  whether  a  stock  dividend,  declared  and 
paid  after  the  statute  went  into  effect  out  of  profits  earned  before 
it  took  effect,  is  taxable  as  income.  The  respondent  Garfield  received 
during  1916  a  stock  dividend  declared  in  that  year  on  shares  of 
stock  in  corporations  owned  by  her  before  that  time. 

The  stock  dividends  in  the  Garfield  case  were  declared  out  of  an 
accumulation  of  earnings  which  before  1916  had  been  invested  in 
permanent  additions  to  the  plants  of  the  corporations  involved.  It 
is  urged  that  these  earnings,  therefore,  had  become  a  part  of  capital 
before  1916  and  hence  cannot  in  the  nature  of  things  be  taxed  as 
income.  It  is  true  that,  in  instances  of  this  sort  arising  between 
life  tenant  and  remainderman,  the  fact  that  the  surplus  of  a  corpora- 
tion has  been  used  in  permanent  increases  of  the  property  devoted 


SECT.    IV.]  TAX    COMMISSIONER   V.    PUTNAM.        '  385 

to  the  business  of  the  corporation  is  oftentimes  of  significance.  Minot 
V.  Paine,  99  Mass.  101,  111.  lleineuway  v.  Hemenway,  181  Mass. 
406,  410.  But  upon  this  point  the  inquiry  is  as  to  the  intention  of 
the  Legislature  as  manifested  by  the  words  it  has  used.  Those  per- 
tinent in  this  connection  are  in  §  2  (b),  where  are  subjected  to  the 
tax.  "  Dividends  on  shares  in  all  corporations  and  joint  stock  com- 
panies .  .  .  [with  exceptions  not  here  material]  ...  No  distri- 
bution of  capital,  whetlier  in  liquidation  or  otherwise,  shall  be 
taxable  as  income  under  this  section;  but  accumulated  profits  shall 
not  be  regarded  as  capital  under  this  provision.'^  That  which  orig- 
inally had  been  earnings  in  the  case  at  bar  had  never  been  dis- 
tributed as  a  cash  dividend  or  in  any  other  form.  Its  use  had  been 
such  as  to  add  to  the  value  of  the  capital.  It  doubtless  had  increased 
that  value  prior  to  li)lG.  But  the  act  of  the  corporation  in  1916 
was  in  substance  a  distribution  of  certificates  of  title  to  represent 
this  increment  of  value  with  all  the  advantages  that  might  flow 
therefrom.  It  was  the  issuance  to  the  stockholder  of  a  new  thing 
of  value,  transferable,  transmissible  and  salable  separate  and  apart 
from  that  which  before  he  had  possessed.  "Accumulated  profits'* 
"as  used  in  the  statute  are  words  of  sufficiently  comprehensive  scope 
to  include  profits  which  had  been  earned  and  invested  as  had  those 
here  in  question.  The  words  "  accumulated  profits "  are  used  as 
the  antithesis  of  "  distribution  of  capital."  The  latter  would  include 
payment  of  a  part  of  the  capital  investment  sold  and  returned  to 
the  shareholders,  whereby  the  capacity  of  the  corporation  to  carry 
on  business  was  impaired  or  depleted.  See,  for  example,  Lvnch  v. 
Hornby,  236  Fed.  Kep.  661 ;  149  C.  C.  A.  657.  Other  illustrations 
might  be  put.  But  the  words  "  distribution  of  capital "  do  not 
readily  lend  themselves  to  an  issue  of  new  stock,  which  in  its  last 
analysis  represents  surplus  earnings  of  the  corporation  for  the  time 
being  applied  to  increase  of  plant  and  which  arc  intended  to  be 
continued  to  that  use.  In  essence  the  thing  which  has  been  done 
is  to  distribute  a  symbol  representing  an  accumulation  of  profits, 
which  instead  of  being  paid  out  in  cash  is  invested  in  the  lousiness, 
thus  augmenting  its  durable  assets.  In  this  aspect  of  the  case  the 
substance  of  the  transaction  is  no  different  from  what  it  would  be 
if  a  cash  dividend  had  been  declared  with  the  privilege  of  subscrip- 
tion to  an  equivalent  amount  of  new  shares.  The  stock  dividend 
was  declared  strictly  out  of  an  accumulation  of  earnings  applied 
to  business  uses  and  not  out  of  increased  market  value  of  capital 
investment.  See  Thayer  v.  Burr,  201  N.  Y.  155.  That  which  the 
stockholder  had  before  was  a  fractional  interest  in  the  property  of 
the  corporation.  So  far  as  concerned  the  accumulation  of  profits, 
there  was  a  possibility  that  they  might  be  paid  out  in  whole  or  in 
part  as  a  cash  dividend  by  authority  of  the  corporation.  By  the 
issue  of  the  stock  dividend  that  possibility  is  gone  and  the  stock- 
holder now  has  evidence  of  a  permanent  interest  in  the  corporate 
enterprise  of  wliich  he  cannot  be  deprived.  It  is  a  thing  different 
in  kind  from  the  thing  which  the  stockholder  owned  before.  From 
the  viewpoint  of  the  stockholder,  he  has  received  in  the  form  of 


386  TAX  COMMISSIONER  V.   PUTNAM.  [ciIAP.    VII. 

dividend  in  stock  a  thing  with  which  theretofore  he  could  have  no 
tangible  dealings.  The  certificate  for  the  new  shares  of  stock  repre- 
senting the  stock  dividend  may  have  a  materially  greater  value  than 
the  less  tactile  right  to  a  share  in  the  accumulated  profits  which 
he  had  before.  The  fact  that  the  surplus  had  been  accumulated 
before  the  income  tax  law  went  into  effect  is  not  of  consequence 
in  this  particular.  The  thing  of  value  which  is  taxed  as  income, 
namely  the  dividend  in  stock,  did  not  come  into  his  possession  or 
right  to  possession  until  the  year  for  which  he  is  taxed.  It  is  this 
thing  of  value  which  is  taxable  at  the  time  when  it  comes  into  his 
right  to  possession.  Edwards  v.  Keith,  145  C.  C.  A.  298.  Van 
Dyke  v.  Milwaukee,  159  Wis.  460. 

The  contention  that  stock  dividends  are  not  taxable  as  income, 
because  in  this  ('ommonwealtli  they  are  treated  as  capital  and  not 
as  income  as  between  life  tenant  and  remaindennan,  has  been  dis- 
posed of  by  what  has  been  said  already  in  discussing  the  second 
tiuestion  here  raised  respecting  the  taxability  as  income  of  rights 
to  subscribe  for  new  shares  of  stock. 

The  stock  dividends,  so  far  as  regards  the  source  from  which 
they  come  to  the  stockholder  and  the  impassive  nature  of  his  receipt 
of  them,  are  derived  from  the  same  class  of  property  from  which 
are  derived  ordinary  dividends  and  rightly  may  be  classified  with 
them  under  §  2  of  the  income  tax  act.  The  two  should  be  taxed, 
as  they  are  in  the  statute,  at  the  same  rate. 

So  far  as  there  may  be  anvthiug  at  variance  with  this  conclusion 
in  L}Tich  V.  Turrish,  236  Fed.  Eep.  653;  149  C.  C.  A.  649,  we  are 
constrained  not  to  follow  it.  See  in  this  connection  Southern  Pacific 
Co.  V.  Lowe,  238  Fed.  Eep.  847. 

Therefore,  in  this  particular  the  income  tax  act  is  not  in  conflict 
with  the  requirements  of  the  Forty-fourth  Amendment  as  to  uni- 
formity of  rate  on  incomes  derived  from  the  same  class  of  property. 

4.  The  fourth  question  is  whether  a  cash  dividend  declared  and 
paid  after  the  statute  took  effect,  out  of  profits  earned  before  it 
was  enacted,  is  taxable  as  income. 

The  respondent  Putnam  received  during  1916  an  extra  cash  div- 
idend of  thirty-three  and  one  third  per  cent  on  certain  shares  of 
corporate  stock  owned  by  him  before  1916,  which  was  declared  out 
of  undistributed  earnings  accrued  before  March,  1913. 

It  is  the  general  and  long  established  rule  in  this  Commonwealth 
that  cash  dividends  received  on  corporate  stock  are  to  be  treated 
as  income  and  not  as  capital.  Talbot  v.  Milliken,  221  Mass.  367. 
Gray  v.  Hemenway,  223  Mass.  293.  There  is  no  reason  in  the  cir- 
cumstances of  the  case  at  bar  for  varying  that  rule.  The  present  case 
is  well  within  the  scope  of  these  decisions.  A  stockholder  has  no  in- 
dividual interest  in  the  profits  of  a  corporation  until  a  dividend 
has  been  declared.  The  accumulation  of  a  surplus  does  not  of  itself 
entitle  stockholders  to  a  dividend.  Smith  v.  Hurd,  12  Met.  371. 
Xew  York,  Lake  Erie,  &  Western  Eailroad  v.  Nickals,  119  U.  S. 
296.  Humphrevs  v.  McKissock,  140  U.  S.  304.  United  States 
Eadiator  Corp.  v.  New  York,  208  N.  Y.  144,  152.     The  extra  cash 


SECT.     IV,]  TOWNE     V.     EISNER.  387 

dividend  was  declared  out  of  surplus  earnings  which  haa  accumu- 
lated during  twenty-three  years  previous  to  March  1,  1!)]:}.  Al- 
though it  was  large  and  had  been  accumulating  for  a  long  time,  it 
was  not  the  less  a  cai^h  dividend.  Jt  came  to  the  shareiiolder  as 
his  individual  property  for  the  first  time  when  it  was  declared  and 
paid  in  1916,  It  was  not  in  substance  or  effect  a  distribution  of 
capital.  Moreover,  it  is  expressly  provided  in  §  2  of  the  income 
tax  law  that  "No  distribution  of  capital,  whether  in  liquidation  or 
otherwise,  shall  be  taxable  as  income  under  this  section  ;  but  accumu- 
lated profits  shall  not  be  regarded  as  capital  under  this  provision." 
Manifestly  it  was  not  intended  hereby  to  change  the  general  rule 
recognized  in  numerous  cases  in  addition  to  those  heretofore  cited, 

Tiie  decision  upon  the  first  three  main  questions  is  by  a  majority 
of  the  court,  and  is  unanimous  upon  the  fourth  question.  It  follows 
that  in  each  case  the  entry  must  be 

Peremptory  writ  of  mandamtis  to  issue. 


TOWNE  V.  EISNER. 
Supreme  Court  of  the  United  States.     1918. 

[Reported  245   U.  8.  418.] 

Holmes,  J.  This  is  a  suit  to  recover  the  amount  of  a  tax  paid 
under  duress  in  respect  of  a  stock  dividend  alleged  by  the  Govern- 
ment to  be  income.  A  demurrer  to  the  declaration  was  sustained 
by  the  District  Court  and  judgment  was  entered  for  the  defendant. 
242  Fed.  Kep,  702.  The  facts  alleged  are  that  the  corporation  voted 
on  December  17,  1913,  to  transfer  $1,500,000  surplus,  being  profits 
earned  before  January  1,  1913,  to  its  capital  account,  and  to  issue 
fifteen  thousand  shares  of  stock  representing  the  same  to  its  stock- 
holders of  record  on  December  2G;  that  the  distribution  took  place 
on  January  2,  1914,  and  that  the  plaintiff  received  as  his  due  pro- 
portion four  thousand  one  hundred  and  seventy-four  and  a  half 
shares.  The  defendant  compelled  the  plaintiff  to  pay  an  income 
tax  upon  this  stock  as  equivalent  to  $417,450  income  in  cash.  The 
District  Court  held  that  the  stock  was  income  within  the  meaning 
of  the  Income  Tax  of  October  3,  1913,  c,  16,  Ssction  II;  A, 
subdivisions  1  and  2;  and  B.  38  Stat.  114,  166,  167.  It  also  held 
that  the  act  so  construed  was  constitutional,  whereas  the  declara- 
tion set  up  that  so  far  as  the  act  purported  to  confer  power  to  make 
this  levy  it  was  unconstitutional  and  void. 

The  Government  in  the  first  place  moves  to  dismiss  the  case  for 
want  of  jurisdiction,  on  the  ground  that  the  only  question  here  is 
the  construction  of  the  statute  not  its  constitutionality.  It  argues 
that  if  such  a  stock  dividend  is  not  income  within  the  meaning  of 
the  Constitution  it  is  not  income  within  the  intent  of  the  statute, 
and  hence  that  the  meaninor  of  the  Sixteenth  Amendment  is  not 


3SS  TOWNE   r.    EISNER.  [cHAP.    VII. 

an  immediate  issue,  and  is  important  only  as  throwing  light  on  the 
construction  of  the  act.  But  it  is  not  necessarily  true  that  income 
means  the  same  thing  in  the  Constitution  and  the  act.  A  word 
is  not  a  crystal,  transparent  and  unchanged,  it  is  the  ^kin  of 
a  living  thought  and  may  vary  greatly  in  color  and  content  accord- 
ing to  the  circumstances  and  the  time  in  which  it  is  used.  Lamar 
V.  United  States,  240  U.  S.  60,  65.  Whatever  the  meaning  of  the 
Constitution,  the  Government  had  applied  its  force  to  the  plain- 
tiff, on  the  assertion  that  the  statute  authorized  it  to  do  so,  before 
the  suit  was  brought,  ajid  the  court  below  has  sanctioned  its  course. 
The  plaintiff  says  that  the  statute  as  it  is  construed  and  admin- 
istered is  unconstitutional.  He  is  not  to  be  defeated  by  the  reply 
that  the  Government  does  not  adhere  to  the  construction  by  virtue 
of  which  alone  it  has  taken  and  keeps  the  plaintiff's  money,  if  this 
court  should  think  that  the  construction  would  make  the  act  un- 
constitutional. While  it  keeps  the  money  it  opens  the  question 
whether  the  act  construed  as  it  has  construed  it  can  be  maintained. 
The  motion  to  dismiss  is  overruled.  Billings  v.  United  States,  232 
U.  S.  261,  276.  Altman  &  Co.  v.  United  States,  224  U.  S.  583, 
596,  597. 

The  case  being  properly  here,  however,  the  construction  of  the 
act  is  open,  as  well  as  its  constitutionality  if  construed  as  the  Gov- 
ernment has  construed  it  by  its  conduct.  Billings  v.  United  States, 
ubi  supra.  Notwithstanding  the  thoughtful  discussion  that  the  case 
received  below  we  cannot  doubt  that  the  dividend  was  capital  as 
well  for  the  purposes  of  the  Income  Tax  Law  as  for  distribution 
betw^een  tenant  for  life  and  remainderman.  WTiat  was  said  by  this 
court  upon  the  latter  question  is  equally  true  for  the  former.  "A 
stock  dividend  really  takes  nothing  from  the  property  of  the  corpora- 
tion, and  adds  nothing  to  the  interests  of  the  shareholders.  Its 
property  is  not  diminished,  and  their  interests  are  not  increased. 
.  .  .  The  proportional  interest  of  each  shareholder  remains  the 
same.  The  only  change  is  in  the  evidence  which  represents  that 
interest,  the  new  shares  and  the  original  shares  together  represent- 
ing the  same  proportional  interest  that  the  original  shares  repre- 
sented before  the  issue  of  the  new  ones."  Gibbons  v.  Mahon,  136 
U.  S.  549,  559,  560.  In  short,  the  corporation  is  no  poorer  and  the 
shareholder  is  no  richer  than  they  were  before.  Logan  County  v. 
United  States,  169  U.  S.  255,  261.  If  the  plaintiff  gained  'any 
small  advantage  by  the  change,  it  certainly  was  not  an  advantage 
of  $417,450,  the  sum  upon  which  he  was  taxed.  It  is  alleged  and 
admitted  that  he  receives  no  more  in  the  way  of  dividends  and  that 
his  old  and  new  certificates  together  are  worth  only  what  the  old 
ones  were  worth  before.  If  the  sum  had  been  carried  from  surplus 
to  capital  account  without  a  corresponding  issue  of  stock  certificates, 
which  there  was  nothing  in  the  nature  of  things  to  prevent,  we  do 
not  suppose  that  any  one  would  contenrl  that  the  plaintiff  had 
received  an  accession  to  his  income.  Presumably  his  certificate 
would  have  the  same  value  as  before.  Again,  if  certificates  for 
$1,000  par  were  split  up  into  ten  certificates  each,  for  $100,  we  pre- 


SECT.    IV.]  EISNEE   V.   MACOMBEK.  389 

sume  that  no  one  would  tall  the  new  certificates  income.  What  has 
happened  is  that  the  plaintiir's  old  ceitificates  have  been  split  up 
in  effect  and  have  diminished  in  value  to  the  extent  of  the  value  of 
the  new.^ 

Judgment  reversed. 


EISNER  V.  MACOMBER. 
Supreme  Court  of  the  United  States.     1920. 

[Reported  252  U.  S.  189.] 

Pitney,  J.  This  case  presents  the  question  whether,  by  virtue 
of  the  Sixteenth  Amendment,  Congress  has  the  power  to  tax,  as  in- 
come of  the  stockholder  and  without  apportionment,  a  stock  dividend 
made  lawfully  and  in  good  faith  against  profits  accumulated  by  the 
corporation  since  March  1,  1913. 

It  arises  under  the  Revenue  Act  of  September  8,  1916,  c.  463,  39 
Stat.  756  et  seq.,  which,  in  our  opinion  (notwithstanding  a  conten- 
tion of  the  Government  that  will  be  noticed),  plainly  evinces  the 
purpose  of  Congress  to  tax  stock  dividends  as  income. 

The  facts,  in  outline,  are  as  follows : 

On  January  1,  1916,  the  Standard  Oil  Company  of  California, 
a  corporation  of  that  State,  out  of  an  authorized  capital  stock  of 
$100,000,000,  had  shares  of  stock  outstanding,  par  value  $100  each, 
amounting  in  round  figures  to  $50,000,000.  In  addition,  it  had 
surplus  and  undivided  profits  invested  in  plant,  property,  and  busi- 
ness and  required  for  the  purposes  of  the  corporation,  amounting 
to  about  $-±5,000,000,  of  which  about  $20,000,000  had  been  earned 
prior  to  ]\Iarch  1,  1913,  the  balance  thereafter.  In  January,  1916, 
in  order  to  readjust  the  capitalization,  the  board  of  directors  decided 
to  issue  additional  shares  sufficient  to  constitute  a  stock  dividend  of 
50  per  cent  of  the  outstanding  stock,  and  to  transfer  from  surplus 
account  to  capital  stock  account  an  amount  equivalent  to  such  issue. 
Appropriate  resolutions  were  adopted,  an  amount  equivalent  to  the 
par  value  of  the  proposed  new  stock  was  transferred  accordingly, 
and  the  new  stock  duly  issued  against  it  and  divided  among  the 
stockholders. 

Defendant  in  error,  being  the  owner  of  2.200  shares  of  the  old  stock, 
received  certificates  for  1,100  additional  shares,  of  which  18,07  per 
cent.,  or  198.77  shares,  par  value  $19,877,  were  treated  as  represent- 
ing surplus  earned  between  March  1,  1913^,  and  Januar}-  1,  1916. 
She  was  called  upon  to  pay,  and  did  pay  under  protest,  a  tax  imposed 
under  the  Revenue  Act  of  1916,  based  upon  a  supposed  income 
of  $19,877  because  of  the  new  shares ;  and  an  appeal  to  the  Com- 
missioner of  Internal  Revenue  having  been  disallowed,  she  brought 
action  against  the  Collector  to  recover  the  tax.  In  her  complaint 
she  alleged  the  above  facts,  and  contended  that  in  imposing  such 

'  See  Ace.  Commissioners  of  Internal  Revenue  v.  Blott,  [1921]  2  A.  C.  171. 


390  EIS^"EIt  V.    MACOltBEE.  [CKAP.    VII. 

a  tax  the  Eeveniie  Act  of  1916  violated  Art,  I,  §  2,  cl.  3,  and  Art. 
I,  §  9,  cl.  4,  of  the  Constitution  of  the  United  States,  requiring 
direct  taxes  to  be  apportioned  according  to  population,  and  that 
the  stock  dividend  was  not  income  within  the  meaning  of  the  Six- 
teenth Amendment.  A  general  demurrer  to  the  complaint  was  over- 
ruled upon  the  authority  of  Tovvne  v.  Eisner,  245  U.  S.  418; 
and,  defendant  having  failed  to  plead  furtlier,  final  judgment 
went  against  him.  To  review  it,  the  present  writ  of  error  is 
prosecuted. 

The  case  was  argued  at  the  last  term,  and  reargued  at  the  present 
term,  both  orally  and  by  additional  briefs. 

We  are  constrained  to  hold  that  the  judgment  of  the  District 
Court  must  be  affirmed :  First,  because  the  question  at  issue  is  con- 
trolled by  Towne  v.  Eisner,  supra;  secondly,  because  a  reexamina- 
tion of  the  question,  with  the  additional  light  thrown  upon  it  by 
elaborate  arguments,  has  confirmed  the  view  that  the  underlying 
ground  of  that  decision  is  sound,  that  it  disposes  of  the  question 
here  presented,  and  that  other  fundamental  considerations  lead  to 
the  same  result. 

The  fundamental  relation  of  "  capital "  to  "  income "  has  been 
much  discussed  by  economists,  the  former  being  likened  to  the  tree 
or  the  land,  the  latter  to  the  fruit  or  the  crop ;  the  former  depicted 
as  a  reservoir  supplied  from  springs,  the  latter  as  the  outlet  stream, 
to  be  measured  by  its  flow  during  a  period  of  time.  For  the  present 
purpose  we  require  only  a  clear  definition  of  the  term  "  income," 
as  used  in  common  speech,  in  order  to  determine  its  meaning  in 
the  Amendment;  and,  having  fonned  also  a  correct  judgment  as 
to  the  nature  of  a  stock  dividend,  we  shall  find  it  easy  to  decide 
the  matter  at  issue. 

After  examining  dictionaries  in  common  use  (Bouv.  L.  D. ;  Stand- 
ard Diet.;  Webster's  Internat,  Diet.;  Century  Diet.),  w^e  find  little 
to  add  to  the  succinct  definition  adopted  in  two  cases  arising  under 
the  Corporation  Tax  Act  of  1909  (Stratton's  Independence  v.  How- 
bert,  231  U.  S.  399,  415;  Doyle  v.  Mitchell  Bros.  Co.,  247  U.  S. 
179,  185) — "Income  may  be  defined  as  the  gain  derived  from 
capital,  from  labor,  or  from  both  combined,"  provided  it  be  under- 
stood to  include  profit  gained  through  a  sale  or  conversion  of  capital 
assets,  to  which  it  was  applied  in  the  Doyle  case  (pp.  183,  185). 

Brief  as  it  is,  it  indicates  the  characteristic  and  distinguishing 
attribute  of  income  essential  for  a  correct  solution  of  the  present 
controversy.  The  Government,  although  basing  its  argument  upon 
the  definition  as  quoted,  placed  chief  emphasis  upon  the  word 
"gain,"  which  wa.s  extended  to  include  a  variety  of  meanings;  while 
the  significance  of  the  next  three  words  was  either  overlooked  or 
misconceived.  "  Derived  —  from,  —  capital " ;  —  "  the  qain  —  de- 
rived—  from  —  capital,"  etc.  Here  we  have  the  essential  matter: 
not  a  gain  accruing  to  capital,  not  a  growth  or  increment  of  value 
in  the  investment;  but  a  gain,  a  profit,  something  of  exchangeable 
value  proceeding  from  the  property,  severed  from  the  capital  how- 
ever invested  or  employed,  and  coming  in,  being  "  derived"  that  is. 


SECT.    IV.]  EISNER  V.   MACOMBER.  391 

received  or  drawn  by  the  recipient  (the  taxpayer)  for  his  srparalo 
use,  benefit  and  disposal  ;^ /A «<  is  income  derived  from  propurty. 
Nothing  else  answers  the  description. 

The  same  fundamental  conception  is  clearly  set  forth  in  ihe  Six- 
teenth Amendment  —  "incomes,  from  whatever  source  derived"  — 
the  essential  thought  being  ex|)ressed  with  a  conciseness  and  lucidity 
entirely  in  harmony  with  the  form  and  style  of  the  Constitution. 

Can  a  stock  dividend,  considering  its  essential  character,  be 
brought  within  the  definition  ?  To  answer  this,  regard  must  be 
had  to  tlie  nature  of  a  corporation  and  the  stockholder's  relation 
to  it.  We  refer,  of  course,  to  a  corporation  such  as  the  one  in  the 
case  at  bar,  organized  for  profit,  and  having  a  capital  stock  divided 
into  shares  to  which  a  nominal  or  par  value  is  attributed. 

Certainly  the  interest  of  the  stockholder  is  a  capital  interest,  and 
his  certificates  of  stock  are  but  the  evidence  of  it.  They  state  the 
number  of  shares  to  which  he  is  entitled  and  indicate  their  par  value 
and  iiow  the  stock  may  be  transferred.  They  show  that  he  or  his 
assignors,  immediate  or  remote,  have  contributed  capital  to  the  en- 
terprise, that  he  is  entitled  to  a  corresponding  interest  proportionate 
to  the  whole,  entitled  to  have  the  property  and  business  of  the  com- 
pany devoted  during  the  corporate  existence  to  attainment  of  the 
common  objects,  entitled  to  vote  at  stockholders'  meetings,  to  receive 
dividends  out  of  the  corporation's  profits  if  and  when  declared,  and, 
in  the  event  of  liquidation,  to  receive  a  proportionate  share  of  the 
net  assets,  if  any,  remaining  after  paying  creditors.  Short  of  liqui- 
dation, or  untildividend  declared,  he  has  no  right  to  withdraw  any 
part  of  either  capital  or  profits  from  the  common  enterprise;  on  the 
contrary,  his  interest  pertains  not  to  any  part,  divisible  or  indivisible, 
but  to  the  entire  assets,  business,  and  affairs  of  the  company.  Nor 
is  it  the  interest  of  an  owner  in  the  assets  themselves,  since  the  cor- 
poration has  full  title,  legal  and  equitable,  to  the  whole.  The  stock- 
holder has  the  right  to  have  the  assets  employed  in  the  enterprise,  with 
the  incidental  rights  mentioned ;  but,  as  stockholder,  he  has  no  right 
to  withdraw,  only  the  right  to  persist,  subject  to  the  risks  of  the 
enterprise,  and  looking  only  to  dividends  for  his  return.  If  he  de- 
sires to  dissociate  himself  from  the  company  he  can  do  so  only  by 
disposing  of  his  stock. 

For  bookkeeping  purposes,  the  company  acknowledges  a  liability 
in  form  to  the  stockholders  equivalent  to  the  aggregate  par  value 
of  their  stock,  evidenced  by  a  "capital  stock  account."  If  profits 
have  i)oen  made  and  not  divided  they  create  additional  bookkeeping 
liabilities  under  the  head  of  "profit  and  loss,"  "undivided  profits," 
"surplus  account,"  or  the  like.  None  of  these,  however,  gives  to 
the  stockholders  as  a  body,  much  less  to  any  one  of  them,  either  a 
claim  against  the  goin?  concern  for  any  particular  sum  of  money, 
or  a  right  to  any  particular  portion  of  the  assets  or  any  share  in 
them  unless  or  until  the  directors  conclude  that  dividends  shall  be 
made  and  a  part  of  the  company's  assets  segregated  from  the  com- 
mon fund  for  the  purpose.  Tlie  dividend  normally  is  payable  in 
money,    under   exceptional    circumstances    in    some    other    divisible 


392  EISNEK  V.  ilACOMBEK,  [cHAP.    VII. 

property;  and  when  so  paid,  then  only  (excluding,  of  course,  a 
possible  advantageous  sale  of  his  stock  or  windiug-up  of  the  com- 
pany) does  the  stockholder  realize  a  profit  or  gain  which  becomes 
his  separate  property,  and  thus  derive  income  from  the  capital  that 
he  or  his  predecessor  has  invested. 

In  the  present  case,  the  corporation  had  surplus  and  undivided 
profits  invested  in  plant,  property,  and  business,  and  required  for 
the  purposes  of  the  corporation,  amounting  to  about  $45,000,000, 
in  addition  to  outstanding  capital  stock  of  $50,000,000.  In  this  the 
case  is  not  extraordinary.  The  profits  of  a  corporation,  as  they 
appear  upon  the  balance  sheet  at  the  end  of  the  year,  need  not  be 
in  the  form  of  money  on  hand  in  excess  of  what  is  required  to  meet 
current  liabilities  and  finance  current  operations  of  the  company. 
Often,  especially  in  a  growing  business,  only  a  part,  sometimes  a 
small  part,  of  the  year's  profits  is  in  property  capable  of  division; 
the  remainder  having  been  absorbed  in  the  acquisition  of  increased 
plant,  equipment,  stock  in  trade,  or  accounts  receivable,  or  in  de- 
crease of  outstanding  liabilities.  When  only  a  part  is  available 
for  dividends,  the  balance  of  the  year's  profits  is  carried  to  the 
credit  of  undivided  profits,  or  surplus,  or  some  other  account  having 
like  significance.  If  thereafter  the  company  finds  itself  in  funds 
beyond  current  needs  it  may  declare  dividends  out  of  such  surplus 
or  undivided  profits;  otherwise  it  may  go  on  for  years  conducting  a 
successful  business,  but  requiring  more  and  more  working  capital 
because  of  the  extension  of  its  operations,  and  therefore  unable  to 
declare  dividends  approximating  the  amount  of  its  profits.  Thus 
the  surplus  may  increase  until  it  equals  or  even  exceeds  the  par 
value  of  the  outstanding  capital  stock.  This  may  be  adjusted  upon 
the  books  in  the  mode  adopted  in  the  case  at  bar  —  by  declaring  a 
"  stock  dividend."  This,  however,  is  no  more  than  a  book  adjust- 
ment, in  essence  not  a  dividend  but  rather  the  opposite;  no  part  of 
the  assets  of  the  company  is  separated  from  the  common  fund,  noth- 
ing distributed  except  paper  certificates  that  evidence  an  antecedent 
increase  in  the  value  of  the  stockholder's  capital  interest  resulting 
from  an  accumulation  of  profits  by  the  company,  but  profits  so  far 
absorbed  in  the  business  as  to  render  it  impracticable  to  separate 
them  for  withdrawal  distribution.  In  order  to  make  the  adjust- 
ment, a  charge  is  made  against  surplus  account  with  corresponding 
credit  to  capital  stock  account,  equal  to  the  proposed  "dividend"; 
the  new  stock  is  issued  against  this  and  the  certificates  delivered 
to  the  existing  stockholders  in  proportion  to  their  previous  holdings. 
This,  however,  is  merely  bookkeeping  that  does  not  affect  the  aggre- 
gate assets  of  the  corporation  or  its  outstanding  liabilities ;  it  affects 
only  the  form,  not  the  essence,  of  the  "liability"  acknowledged  by 
the  corporation  to  its  own  shareholders,  and  this  through  a  readjust- 
ment of  accounts  on  one  side  of  the  balance  sheet  only,  increasing 
"  capital  stock  "  at  the  expense  of  "  surplus " ;  it  does  not  alter  the 
preexisting  proportionate  interest  of  any  stockholder  or  increase 
the  intrinsic  value  of  his  holding  or  of  the  aggregate  holdings  of 
tiie  other  stockholders  as  they  stood  before.     The  new  certificates 


SECT.    IV.]  EISXEK   V.    MACOMBEE.  393 

simply  increase  the  number  of  the  shares,  with  consequent  dilution 
of  the  value  of  each  share. 

A  "  stock  dividend  "  shows  that  the  company's  accumulated  profits 
have  been  capitalized,  instead  of  distributed  to  the  stockholders  or 
retained  as  surplus  available  for  distribution  in  money  or  in  kind 
should  opportunity  offer.  Far  from  being  a  realization  of  profits 
of  the  stockholder,  it  tends  rather  to  postpone  such  realization,  in 
that  the  fund  represented  by  the  new  stock  lias  been  transferred 
from  surplus  to  capital,  and  no  longer  is  available  for  actual  dis- 
tribution. 

The  essential  and  controlling  fact  is  that  the  stockholder  has 
received  nothing  out  of  the  company's  assets  for  his  separate  use 
and  benefit;  on  the  contrary,  every  dollar  of  his  original  investment, 
together  with  whatever  accretions  and  accumulations  have  resulted 
from  employment  of  his  money  and  tiiat  of  the  other  stockholders 
in  the  business  of  the  company,  still  remains  the  property  of  the 
company,  and  subject  to  business  risks  which  may  result  in  wiping 
out  the  entire  investment.  Having  regard  to  the  very  truth  of  the 
matter,  to  substance  and  not  to  form,  he  has  received  nothing  that 
answers  the  definition  of  income  within  the  meaning  of  the  Six- 
teenth Amendment. 

Being  concerned  only  with  the  true  character  and  effect  of  such 
a  dividend  when  lawfully  made,  we  lay  aside  the  question  whether 
in  a  particular  case  a  stock  dividend  may  be  authorized  by  the  local 
law  governing  the  corporation,  or  whether  the  capitalization  of  prof- 
its may  be  the  result  of  correct  judgment  and  proper  business  policy 
on  the  part  of  its  management,  and  a  due  regard  for  the  interests 
of  the  stockholders.  And  we  are  considering  the  taxability  of  bona 
fide  stock  dividends  only. 

We  are  clear  that  not  only  does  a  stock  dividend  really  take  noth- 
ing from  the  property  of  the  corporation  and  add  nothing  to  that 
of  the  shareholder,  but  that  the  antecedent  accumulation  of  profits 
evidenced  thereby,  while  indicating  that  the  shareholder  is  the  richer 
because  of  an  increase  of  his  capital,  at  the  same  time  shows  he  has 
not  realized  or  received  any  income  in  the  transaction. 

It  is  said  that  a  stockholder  may  sell  the  new  shares  acquired  in 
the  stock  dividend;  and  so  he  may,  if  he  can  find  a  buyer.  It  is 
equally  true  that  if  he  does  sell,  and  in  doing  so  realizes  a  profit, 
such  profit,  like  any  other,  is  income,  and  so  far  as  it  may  have 
arisen  since  the  Sixteenth  Amendment  is  taxable  by  Congress  with- 
out apportionment.  The  same  would  be  true  M-ere  he  to  sell  some 
of  his  original  shares  at  a  profit.  But  if  a  shareholder  sells  dividend 
stock  he  necessarily  disposes  of  a  part  of  hi?  capital  interest,  just 
as  if  he  should  sell  a  part  of  his  old  stock,  either  before  or  after 
the  dividend.  AYhat  he  retains  no  longer  entitles  him  to  the  same 
proportion  of  future  dividends  as  before  the  sale.  His  part  in  the 
control  of  the  company  likewise  is  diminished.  Thus,  if  one  holding 
$60,000  out  of  a  total  $100,000  of  the  capital  stock  of  a  corporation 
should  receive  in  common  with  other  stockholders  a  50  per  cent 
stock  dividend,  and  should  sell  his  part,  he  thereby  would  be  reduced 


394  EISNER  V.   MACOMBER.  [CHAP.   VTT. 

from  a  majority  to  a  minority  stockholder,  having  six-fifteenths 
instead  of  six-tenths  of  the  total  stock  outstanding.  A  correspond- 
ing and  proportionate  decrease  in  capital  interest  and  in  voting 
power  would  befall  a  minority  holder  should  he  sell  dividend  stock; 
it  being  in  the  nature  of  things  impossible  for  one  to  dispose  of  any 
part  of  such  an  issue  without  a  proportionate  disturbance  of  the 
distribution  of  the  entire  capital  stock,  and  a  like  diminution  of 
the  seller's  comparative  voting  power  —  that  "  right  preservative 
of  rights"  in  the  control  of  a  corporation.  Yet,  without  selling, 
the  shareholder,  unless  possessed  of  other  resources,  has  not  the 
wherewithal  to  pay  an  income  tax  upon  the  dividend  stock.  Nothing 
could  more  clearly  show  that  to  tax  a  stock  dividend  is  to  tax  a 
capital  increase,  and  not  income,  than  this  demonstration  that  in 
the  nature  of  things  it  requires  conversion  of  capital  in  order  to 
pay  the  tax. 

Throughout  the  argument  of  the  Government,  in  a  variety  of 
forms,  runs  the  fundamental  error  already  mentioned  —  a  failure 
to  appraise  coiTectly  the  force  of  the  term  "  income  "  as  used  in  the 
Sixteenth  Amendment,  or  at  least  to  give  practical  effect  to  it.  Thus, 
the  Government  contends  that  the  tax  "  is  levied  on  income  derived 
from  corporate  earnings,"  when  in  truth  the  stockholder  has  "de- 
rived "  nothing  except  paper  certificates  which,  so  far  as  they  have 
any  effect,  deny  him  present  participation  in  such  earnings.  It 
contends  that  the  tax  may  be  laid  when  earnings  "are  received 
by  the  stockholder,"  whereas  he  has  received  none;  that  the  profits 
are  "  distributed  by  means  of  a  stock  dividend,"  although  a  stock 
dividend  distributes  no  profits;  that  under  Act  of  1916  "the  tax 
is  on  the  stockholder's  share  in  corporate  earnings,"  when  in  truth 
a  stockholder  has  no  such  share,  and  receives  none  in  a  stock  div- 
idend; that  "the  profits  are  segregated  from  his  former  capital, 
and  he  has  a  separate  certificate  representing  his  invested  profits 
or  gains,"  whereas  there  has  been  no  segregation  of  profits,  nor 
has  he  any  separate  certificate  representing  a  personal  gain,  since 
the  certificates,  new  and  old,  are  alike  in  what  they  represent  —  a 
capital  interest  in  the  entire  concerns  of  the  corporation. 

We  have  no  doubt  of  the  power  or  duty  of  a  court  to  look 
through  the  form  of  the  corporation  and  determine  the  question  of 
the  stockholder's  right,  in  order  to  ascertain  whether  he  has  received 
income  taxable  by  Congress  without  apportionment.  But,  looking 
through  the  form,  we  cannot  disregard  the  essential  truth  disclosed; 
ignore  the  substantial  difference  between  corporation  and  stock- 
holder; treat  the  entire  organization  as  unreal;  look  upon  stock- 
holders as  partners,  when  they  are  not  such;  treat  them  as  having 
in  equity  a  right  to  a  partition  of  the  corporate  assets,  when  they 
have  none;  and  indulge  the  fiction  that  they  have  received  and 
realized  a  share  of  the  profits  of  the  company  which  in  truth  they 
have  neither  received  nor  realized.  "We  must  treat  the  corporation 
as  a  substantial  entity  separate  from  the  stockholder,  not  only  be- 
cause such  is  the  practical  fact  but  because  it  is  only  by  recognizing 
such  separateness  that  any  dividend  —  even  one  paid  in  money  or 


SECT.    IV.]  EISNER   V.    MACOMBER.  395 

property  —  can  be  regarded  as  income  of  the  stockholder.  Did  we 
regard  corporation  and  stockholders  as  altogether  identical,  there 
would  be  no  income  except  as  the  corporation  at-quired  it;  and  while 
this  would  be  taxable  against  the  corporation  as  income  under  ap- 
propriate provisions  of  law,  the  individual  stockholders  could  not 
be  separately  and  additionally  taxed  with  respect  to  their  several 
shares  even  when  divided,  since  if  there  were  entire  identity  between 
them  and  the  company  they  could  not  be  regarded  as  receiving  any- 
thing I'rom  it,  any  more  than  if  one's  money  were  to  be  removed 
from  one  pocket  to  another. 

Conceding  that  the  mere  issue  of  a  stock  dividend  makes  the 
recipient  no  richer  than  l)efore,  the  Government  nevertheless  con- 
tends tliat  the  new  certificates  measure  the  extent  to  which  the  gains 
accumulated  by  the  corporation  have  made  him  the  richer.  There 
are  two  insuperable  difficulties  with  this :  In  the  first  place,  it  would 
depend  upon  how  long  he  had  held  the  stock  whether  the  stock 
dividend  indicated  the  extent  to  which  he  had  been  enriched  by  the 
operations  of  the  company ;  unless  he  had  held  it  throughout  such 
operations  the  measure  would  not  hold  true.  Secondly,  and  more 
important  for  present  purposes,  enrichment  through  increase  in 
value  of  capitar  investment  is  not  income  in  any  proper  meaning 
of  the  term. 

The  complaint  contains  averments  respecting  the  market  prices 
of  stock  such  as  plaintiff  held,  based  upon  sales  before  and  after  the 
stock  dividend,  tending  to  show  that  the  receipt  of  the  additional 
shares  did  not  substantially  change  the  market  value  of  her  entire 
holdings.  This  tends  to  show  that  in  this  instance  market  quota- 
tions reflected  intrinsic  values  —  a  thing  they  do  not  always  do. 
But  we  regard  the  market  prices  of  the  securities  as  an  unsafe 
criterion  in  inquiry  such  as  the  present,  when  the  question  must  be 
not  what  will  the  thing  sell  for,  but  what  is  it  in  truth  and  in  essence. 

It  is  said  there  is  no  difference  in  principle  between  a  simple 
stock  dividend  and  a  case  where  stockholders  use  money  received 
as  cash  dividends  to  purchase  additional  stock  contemporaneously 
issued  by  the  corporation.  But  an  actual  cash  dividend,  wnth  a 
real  option  to  the  stockholder  eitlior  to  keep  the  money  for  his  own 
or  to  reinvest  it  in  new  sliares,  would  be  as  far  removed  as  possible 
from  a  true  stock  dividend,  such  as  the  one  we  have  under  considera- 
tion, where  nothing  of  value  is  taken  from  the  company's  assets 
and  transferred  to  the  individual  ow^nership  of  the  several  stock- 
holders and  thereby  subjected  to  their  disposal. 

The  Government's  reliance  upon  the  supposed  analogy  between 
a  dividend  of  the  corporation's  own  shares  ;uid  one  ninde  by  distrib- 
uting sliares  owned  l)y  it  in  the  stock  of  another  comininy,  calls 
for  no  comment  beyond  the  statement  that  the  latter  distributes 
assets  of  the  company  among  the  shareholders  while  the  former 
does  not;  and  for  no  citation  of  authority  except  Peabodv  v  Eisner 
247  TJ.  S.  347,  349-350. 

Two  recent  decisions,  proceeding  from  courts  of  high  jurisdiction, 
are  cited  in  support  of  the  position  of  the  Government. 


396  EISXER  V.  MACOilBEK.  [ciIAP.    VII. 

Swan  Brewery  Co.,  Ltd.,  v.  Eex  [1914]  A.  C.  231,  arose  under 
the  Dividend  Duties  Act  of  Western  Australia,  which  provided  that 
"  dividend  ''  should  include  "  every  dividend,  profit,  advantage,  or 
gain  intended  to  be  paid  or  credited  to  or  distributed  among  any 
members  or  directors  of  any  company,"  except,  etc.  There  was  a 
stock  dividend,  the  new  shares  being  alloted  among  the  shareholders 
pro  rata;  and  the  question  was  whether  this  was  a  distribution  of 
a  dividend  within  the  meaning  of  the  act.  The  Judicial  Committee 
of  the  Priv}'  Council  sustained  the  dividend  duty  upon  the  ground 
that,  although  ''  in  ordinary  language  the  new  shares  would  not  be 
called  a  dividend,  nor  would  the  allotment  of  them  be  a  distribution 
of  a  dividend,"  yet,  within  the  meaning  of  the  act,  such  new  shares 
were  an  ""'  advantage "  to  the  recipients.  There  being  no  constitu- 
tional restriction  upon  the  action*  of  the  lawmaking  body,  the  case 
presented  merely  a  question  of  statutory  construction,  and  mani- 
festly the  decision  is  not  a  precedent  for  the  guidance  of  £his  court 
when  acting  under  a  duty  to  test  an  act  of  Congress  by  the  limita- 
tions of  a  written  Constitution  having  superior  force. 

In  Tax  Commissioner  v.  Putnam  (1917),  227  Massachusetts, 
522,  it  was  held  that  the  44th  Amendment  to  the  constitution  of 
Massachusetts,  which  conferred  upon  the  legislature  full  power  to 
tax  incomes,  "must  be  interpreted  as  including  every  item  which 
by  any  reasonable  understanding  can  fairly  be  regarded  as  income" 
(pp.  526,  531)  ;  and  that  under  it  a  stock  dividend  was  taxable  as 
income,  the  court  saying  (p.  535)  :  "In  essence  the  thing  which 
has  been  done  is  to  distribute  a  symbol  representing  an  accumula- 
tion of  profits,  which  instead  of  being  paid  out  in  cash  is  invested 
in  the  business,  thus  augmenting  its  durable  assets.  In  this  aspect 
of  the  case  the  substance  of  the  transaction  is  no  different  from  what 
it  would  be  if  a  cash  dividend  had  been  declared  with  the  privilege 
of  subscription  to  an  equivalent  amount  of  new  shares."  We  cannot 
accept  this  reasoning.  Evidently,  in  order  to  give  a  sufficiently 
broad  sweep  to  the  new  taxing  provision,  it  was  deemed  necessary 
to  take  the  symbol  for  the  substance,  accumulation  for  distribution, 
capital  accretion  for  its  opposite;  while  a  case  where  money  is  paid 
into  the  hand  of  the  stockholder  with  an  option  to  buy  new  shares 
with  it,  followed  by  acceptance  of  the  option,  was  regarded  as  iden- 
tical in  substance  with  a  case  where  the  stockholder  receives  no  money 
and  has  no  option.  The  Massachusetts  court  was  not  under  an 
obligation,  like  the  one  which  binds  us,  of  applying  a  constitutional 
Amendment  in  the  light  of  other  Constitutional  provisions  that 
stand  in  the  way  of  extending  it  by  construction. 

Upon  the  second  argument,  the  Government,  recognizing  the  force 
of  the  decision  in  Towne  v.  Eisner,  supra,  and  virtually  abandoning 
the  contention  that  a  stock  dividend  increases  the  interest  of  the 
stockholder  or  otherwise  enriches  him,  insisted  as  an  alternative 
that  by  the  true  construction  of  the  Act  of  1916  the  tax  is  imposed 
not  upon  the  stock  dividend  but  rather  upon  the  stockholder's  share 
of  the  undivided  profits  previously  accumulated  by  the  corporation ; 
the  tax  being  levied  as  a  matter  of  convenience  at  the  time  such 


SECT.   IV.]  EISXEK    V.    ilACOMBEK.  397 

profits  become  manifest  througli  the  stock  dividend.  If  so  con- 
etrued,  would  the  act  be  constitutional  ? 

That  Congress  ha.s  power  to  tax  shareholders  upon  tlieir  property 
interests  in  the  stock  of  corporations  is  beyond  question;  and  tliat 
such  interests  might  be  valued  in  view  of  the  condition  of  the  com- 
pany, including  its  accumulated  and  undivided  profits,  is  equally 
clear.  But  that  this  would  be  taxation  of  property  because  of  owner- 
ship, and  hence  would  require  aj)portionnient  under  the  provisions 
of  the  Constitution,  is  settled  beyond  peradventure  by  previous 
decisions  of  this  court. 

Tiie  Government  relies  upon  Collector  v.  Hubbard  (1870),  12 
Wall.  1,  17,  which  arose  under  §  117  of  the  Act  of  June  ;iO,  18G4, 
C..173,  13  iStat.  223,  282,  providing  that  "the  gains  and  profits  of 
all  companies,  whether  incorporated  or  partnership,  other  than  the 
companies  specified  in  tiiis  section,  shall  be  included  in  estimating 
the  annual  gains,  profits,  or  income  of  any  person  entitled  to  the 
eame,  whether  divided  or  otherwise."  The  court  held  an  individual 
taxable  upon  his  proportion  of  the  earnings  of  a  corporation  al- 
though not  declared  as  dividends  and  although  invested  in  assets 
not  in  their  nature  divisible.  Conceding  that  the  stockholder  for 
certain  purposes  had  no  title  prior  to  dividend  declared,  the  court 
nevertheless  said  (p.  18)  :  "Grant  all  tiiat,  still  it  is  true  that  the 
owner  of  a  share  of  stock  in  a  corporation  holds  the  share  with  all 
its  incidents,  and  that  among  those  incidents  is  the  right  to  receive 
all  future  dividends,  that  is,  his  proportional  share  of  all  profits 
not  then  divided.  Profits  are  incident  to  the  share  to  which  the 
owner  at  once  becomes  entitled  provided  he  remains  a  member  of 
the  corporation  until  a  dividend  is  made.  Eegarded  as  an  incident 
to  the  shares,  undivided  profits  are  property  of  the  shareholder, 
and  as  such  are  the  proper  subject  of  sale,  gift,  or  devise.  Undivided 
profits  invested  in  real  estate,  machinery,  or  raw  material  for  the 
purpose  of  being  manufactured  are  investments  in  which  the  stock- 
holders are  interested,  and  when  such  profits  are  actually  appro- 
priated to  the  payment  of  the  debts  of  the  corporation  they  serve 
to  increase  the  market  value  of  the  shares,  whether  held  by  the 
original  subscribers  or  by  assignees."  In  so  far  as  this  seems  to 
uphold  the  right  of  Congress  to  tax  without  apportionment  a  stock- 
holder's interest  in  accumulated  earnings  prior  to  dividend  declared, 
it  must  be  regarded  as  overruled  bv  Pollock  v.  Farmers'  Loan  & 
Trust  Co.,  158  U.  S.  601,  637,  628,  637.  Conceding  Collector  v. 
Hubbard  was  inconsistent  with  the  doctrine  of  that  case,  because 
it  sustained  a  direct  tax  upon  property  not  apportioned  among 
the  States,  the  Government  nevertheless  insists  that  the  Sixteenth 
Amendment  removed  this  obstacle,  so  that  now  the  Hubbard  case 
is  authority  for  the  power  of  Congress  to  levy  a  tax  on  the  stock- 
holder's share  in  the  accumulated  profits  of  the  corporation  even 
before  division  by  the  declaration  of  a  dividend  of  any  kind.  Mani- 
festly this  argument  must  be  rejected,  since  the  Amendment  applies 
to  income  only,  and  what  is  called  the  stockholder's  share  in  the 
accumulated  profits  of  the  company  is  capital,  not  income.     As  we 


398  LYNCH    V.    TURKISH.  [CHAP.  VII. 

have  pointed  out,  a  stockholder  has  no  individual  share  in  accumu- 
lated protits,  nor  in  any  particular  part  of  the  assets  of  the  corpora- 
tion, prior  to  dividend  declared. 

Thus,  from  every  point  of  view,  we  are  brought  irresistibly  to  the 
conclusion  that  neither  under  the  Sixteenth  Amendment  nor  other- 
wise has  Congress  jjower  to  tax  without  apportionment  a  true  stock 
dividend  made  lawfully  and  in  good  faith,  or  the  accumulated  profits 
behind  it,  as  income  of  tlie  stockholder.  The  Revenue  Act  of  1916, 
in  so  far  as  it  imposes  a  tax  upon  the  stockholder  because  of  such 
dividend,  contravenes  the  provisions  of  Article  I,  §  2,  cl.  3,  and 
Article  I,  §  9,  cl.  4,  of  the  Constitution,  and  to  this  extent  is  in- 
valid notwithstanding  the  Sixteenth  Amendment. 

Holmes,  Day^  Bkandeis  and  Clarke,  JJ.,  dissenting.^ 


LYNCH  V.  TURKISH. 

SUPEEME    COUET    OF   THE    UNITED    STATES.      1918. 
[Reported  247  U.  8.  221.] 

McKenna,  J.  Suit  to  recover  an  income  tax,  paid  under  protest, 
assessed  under  the  act  of  October  3,  1913,  38  Stat.  166. 

The  facts,  as  admitted  by  demurrer,  are  these :  Respondent,  Tur- 
rish,  who  was  plaintitf  in  the  trial  court,  made  a  return  of  his  income 
for  the  calendar  year  1914  which  showed  that  he  had  no  net  income 
for  that  year;  afterwards  the  Commissioner  of  Internal  Revenue 
made  a  supplemental  assessment  showing  that  he  had  received  a 
net  income  of  $32,712.08,  which,  because  of  specific  deductions  and 
exemptions,  resulted  in  no  normal  tax,  but  as  the  net  income  exceeded 
the  sum  of  $20,000  the  commissioner  assessed  an  additional  or  super 
tax  of  one  per  cent  upon  the  excess,  resulting  in  a  tax  of  $127.12, 
which  was  sought  to  be  recovered.  The  reassessment  was  based 
upon  certain  sums  received  by  the  plaintiff  in  the  year  1914  as  dis- 
tributions from  corporations  subject  to  the  income  tax  law  and  held 
by  the  commissioner  to  be  income  derived  from  dividends  received 
by  the  plaintiff  on  stock  of  domestic  corporations ;  of  which  the  sum 
of  $79,975,  received  as  a  distribution  from  the  Payette  Lumber  & 
Manufacturing  Co.,  and  without  which  no  tax  could  have  been  levied 
against  the  plaintiff,  is  here  in  dispute. 

Prior  to  March  1,  1913,  and  continuously  thereafter  until  the 
surrender  of  his  stock  as  hereinafter  mentioned,  plaintiff  was  a 
stockholder  in  the  Payette  Co.,  which  was  organized  in  the  year  1903 
with  power  to  buy,  hold,  and  sell  timberlands,  and  in  fact  never  en- 
gaged in  any  other  business  than  this  except  minor  businesses  in- 
cidental to  it.     Immediately  after  its  organization  this  company  be- 

*  The  dissentiTijr  opinions  should  be  read.     See  also  E.  H.  Warren,  "  Taxa- 
bility of  Stock  Dividends  as  Income,"  3.3  Harvard  Law  Review,  885. 


SECT.    IV.]  LYNCH    V.    TUREISJl.  399 

gan  lo  invest  in  timbcrland.s,  and  prior  to  March  1,  1913,  had  thus 
invested  approximately   $1, ."375,000. 

On  Marcli  1,  1913,  the  value  of  its  assets  was  not  less  than  $3,000, 
000,  of  which  sum  the  value  of  the  timberlands  was  not  less  than 
$2,875,000.  The  increase  was  due  to  the  gradual  rise  in  the  market 
value  of  the  lands.  At  that  date  the  value  of  Turrish's  stock  was 
twice  its  par  value,  or  $I5i),!j50,  and  about  that  time  he  and  all  the 
other  stockholders  gave  an  oj^tion  t(j  sell  their  stock  for  twice  its  par 
value.  The  hoklers  of  the  option  formed  another  comfKUiy,  called 
the  Hoisc-Payette  Lumber  Co.,  and  transferred  the  options  to  it. 
The  options  having  been  extended  to  Decendjer  31,  li)13,  the  new 
company  informed  the  Tayette  Co.  and  its  stockholders  shortly  be- 
fore this  date  that  instead  of  exercising  the  option  it  preferred  and 
proposed  to  purchase  all  of  the  assets  of  the  Payette  Co.,  paying  to 
that  com])any  such  a  purchase  price  that  there  would  be  available 
for  distribution  to  its  stockholders  twice  the  par  value  of  their  stock. 
The  stockholders  by  resolution  authorized  this  sale,  and,  pursuant 
to  this  and  a  resolution  of  the  directors,  the  Payette  Co.  transferred 
to  the  new  company  all  of  its  assets,  property,  and  franchises,  and 
upon  the  completion  of  the  transaction  found  itself  with  no  assets 
or  property,  except  cash  to  the  amount  of  double  the  par  value  of 
its  stock  which  had  been  paid  to  it  by  the  new  company,  and  with  no 
debt,  liabilities,  or  obligations  except  those  which  the  new  company 
had  assumed.  The  cash  was  distributed  to  the  stockholders  on  the 
surrender  of  their  certificates  of  stock,  and  the  company  went  out 
of  business.  In  this  way,  upon  the  surrender  of  his  shares,  Turrish 
received  $159,950,  being  doul)le  their  par  value. 

The  Commissioner  of  Internal  Revenue  considered  that  of  this 
sum  one-half  was  not  taxable,  being  the  liquidation  of  the  par  value 
of  Turrish's  stock,  but  that  the  other  half  was  income  for  the  year 
1914  and  taxable  under  the  act  of  1913. 

The  question  in  the  case  is  thus  indicated.  The  District  Court 
took  a  different  view  from  that  of  the  Commissioner  of  Internal 
Revenue  and  therefore  overruled  the  demurrer  to  Turrish's  complaint 
and  entered  judgment  for  him  for  the  sum  prayed,  which  judgment 
was  affirmed  bv  the  Circuit  Court  of  Appeals  for  the  Eighth  Circuit. 
(236  Fed.  653.) 

The  point  in  the  case  seems  a  short  one.  It,  however,  has  pro- 
voked much  discussion  on  not  only  the  legal  but  the  economic  dis- 
tinction between  capital  and  income  and  by  what  processes  and  at 
what  point  of  time  the  former  produces  or  becomes  the  latter.  And 
this  in  resolution  of  a  statute  which  concerns  the  activities  of  men 
and  intended,  it  miofht  be  supposed,  to  be  without  perplexities  and 
readily  solvable  by  the  offhand  conceptions  of  those  to  whom  it  was 
addressed. 

The  provisions  of  the  act.  so  far  as  material  to  be  noticed,  are  the 
following:  That  there  is  assessed  "upon  the  entire  net  income  aris- 
ing or  accruing  from  all  sources  in  the  preceding  calendar  year  to 
every  .  .  .  person  residing  in  the  United  States  ...  a  tax  of  one  per 
centum  per  annum  upon  such  income.  .  .  ."     (Par.  A,  subdiv.  1.) 


400  LYNCH   V.   TURKISH.  [CHAP.   VII. 

In  addition  to  that  tax,  which  is  denominated  the  normal  income 
tax,  it  is  provided  that  there  shall  be  levied  "  upon  the  net  iueonie 
of  every  individual  an  additional  tax  ...  of  one  per  centum  per 
annum  upon  the  amount  by  which  the  total  net  income  exceeds" 
certain  amounts,  and  the  person  subject  to  tlie  tax  is  required  to 
make  a  personal  return  of  his  total  net  income  from  all  sources  under 
rules  and  regulations  to  be  prescribed  by  the  Commissioner  of  Inter- 
nal Revenue.     (Subdiv.  2.) 

By  paragraph  B  it  is  provided  that,  subject  to  certain  exemptions 
and  "^deductions,  "the  net  income  of  a  taxable  person  shall  include 
gains,  profits,  and  income  derived  from  salaries,  wages,  or  compen- 
sation for  personal  service  .  .  .  also  from  interest,  rent,  dividends, 
securities,  or  the  transaction  of  any  lawful  business  carried  on  for 
gain  or  profit,  or  gains  or  profits  and  income  derived  from  any  source 
whatever." 

After  specifying  the  exemptions  and  deductions  allowed,  the  law 
declares  as  follows : 

"  The  said  tax  shall  be  computed  upon  the  remainder  of  said  net 
income  of  each  person  subject  thereto,  accruing  during  each  preced- 
ing calendar  year  ending  December  thirty-first:  Provided,  however. 
That  for  the  year  ending  December  thirty-first,  nineteen  hundred 
and  thirteen,  said  tax  shall  be  computed  on  the  net  income  accruing 
from  March  first  to  December  tliirty-first,  nineteen  hundred  and  thir- 
teen, both  dates  inclusive.  .  .  ."     (Par.  D.) 

It  will  be  observed,  therefore,  that  the  statute  levies  a  normal  tax 
and  an  additional  tax  upon  net  incomes,  derived  from  whatever 
source,  "  arising  or  accruing "  each  preceding  calendar  year  ending 
December  31,  except  that  for  the  year  ending  December  31,  1913, 
the  tax  shall  be  computed  on  the  net  income  accruing  from  March  1, 
1913,  to  December  31,  1913. 

And  in  determining  the  application  of  the  statute  to  Turrish  we 
must  keep  in  mind  that  on  the  admitted  facts  the  distribution  re- 
ceived by  him  from  the  Payette  Co.  manifestly  was  a  single  and  final 
dividend  in  liquidation  of  the  entire  assets  and  business  of  the  com- 
pany, a  return  to  him  of  the  value  of  his  stock  upon  the  surrender  of 
his  entire  interest  in  the  company,  and  at  a  price  that  represented 
its  intrinsic  value  at  and  before  March  1,  1913,  when  the  act  took 
effect. 

The  District  Court  and  the  Circuit  Court  of  Appeals  decided  that 
the  amount  so  distributed  to  Turrish  was  not  income  within  the 
meaning  of  the  statute,  basing  the  decision  on  two  propositions,  as 
expressed  in  the  opinion  of  the  Circuit  Court  of  Appeals,  by  Sanborn, 
Circuit  Judge —  (a)  The  amount  was  the  realization  of  an  invest- 
ment made  some  years  before,  representing  its  gradual  increase  dur- 
ing those  years,  and  which  reached  its  height  before  the  effective 
date  of  the  law,  that  is,  before  March  1,  1913,  and  the  mere  change 
of  form  of  the  property  "  as  from  real  to  personal  property,  or  from 
stock  to  cash"  was  not  income  to  its  holders  because  the  value  of 
the  property  was  the  same  after  as  before  the  change;  (h)  the  timber- 


SECT.   IV.]  LYNCH   V.   TUEEISH.  401 

lands  were  the  property,  capital,  and  capital  assets  of  their  legal  and 
equitable  owner  and  the  enhancement  of  their  value  during  a  series 
of  years  "prior  to  the  eU'ective  date  of  the  inconie-tiix  law,  although 
divided  or  distrilnited  by  dividend  or  otherwise  euljsequent  to  that 
date,  does  not  become  income,  gains,  or  profits  taxable  under  such 
an  act." 

For  proposition  "a"  the  court  cited  Collector  v.  Hubbard,  12 
Wall.  1;  IJailoy  v.  Railroad  Company,  23  Wall.  GO-i,  and  the  same 
case  in  lUG  \J.  S.  lOt).  For  proposition  "6"  Gray  v.  Darlington, 
15  Wall.  63,  was  relied  on. 

The  Government  opposes  both  contentions  by  an  elaborate  argu- 
ment containing  definitions  of  capital  and  income  drawn  from  legal 
and  economic  sources  and  given  breadth  to  cover  a  number  of  other 
cases  submitted  Avith  this.  The  argument,  in  efi'ect,  nuikes  any  in- 
crease of  value  of  property  income,  emerging  as  such  and  taxable 
at  the  moment  of  realization  by  sale  or  some  act  of  separation,  as  by 
dividend  declared  or  by  distribution,  as  in  the  instant  case. 

To  sustain  the  argument  these  definitions  are  presented : 

1.  Capital  is  anything,  material  or  otherwise,  capable  of  owner- 
ship, viewed  in  its  static  condition  at  a  moment  of  time,  or  the  rights 
of  ownership  therein. 

2.  Income  is  the  service  or  return  rendered  by  capital  during  a 
period  of  time.  .  .  . 

4.  Xet  income  ('"profits")  is  the  difference  between  income  and 
outgo.  .  .  . 

7.  In  the  actual  production  and  distribution  of  capital  there  is  a 
constant  conversion  of  capital  into  income,  and  vice  versa. 

8.  The  attempt  to  conceal  this  conversion  by  treating  "income" 
as  the  standard  return  from  intact  "  capital  "  only  leads  to  confusion 
of  the  value  of  capital  with  capital  itself. 

From  these  definitions  are  deduced  the  following  propositions, 
which  are  said  to  be  decisive  of  the  problems  in  the  cases : 

1.  Income  being  derived  from  the  use  of  capital,  the  conversion, 
or  transfer  of  capital  always  produces  income. 

2.  Mere  appreciation  of  capital  value  does  not  produce  "  income," 
nor  mere  depreciation  "  outgo." 

3.  Xet  income  is  the  difference  between  actual  "income"  and  ac- 
tual  "  outgo." 

4.  Income  is  not  confined  to  money  income,  but  includes  anything 
capable  of  easy  valuation  in  money. 

It  will  be  observed  that  the  breadth  of  definition  and  the  breadth 
of  application  are  necessary  to  the  refutation  of  the  reasoning  of  the 
Circuit  Court  of  Appeals.  There  is  direct  antagonism,  the  court 
basing  its  reliance,  it  sa3'S,  upon  what  it  asserts  is  the  common  sense 
and  understanding  of  the  words  of  the  law,  and  the  exposition  of  like 
laws  by  the  decisions  of  this  court.  The  Government's  resource  is 
the  discussion  of  economists  and  the  fact,  concrete  and  ]iractical,  of 
wealth  not  onlv  increased  but  come  to  actual  hand.    The  instant  case 


402  ly:!;cii  v.  tukrisil.  [chap,  vii, 

is  an  example.  Turrish's  stock  doubled  in  value.  He  paid  for  it 
$79,975.00;  he  received  $159,950.00.  It  requires  a  struggle  to  re- 
sist the  iiitlueuce  of  the  fact,  but  we  are  aided  and  fortified  by  our 
own  precedents  and  saved  from  such  intricate  and  subtle  discussion 
and  an  elaborate  review  of  other  cases  cited  in  confirmation  or  op- 
position. 

In  Collector  v.  Hubbard,  supra,  the  distinction  between  a  corpo- 
ration and  its  stockholders  was  recognized  and  that  the  stockholder 
had  no  title  for  certain  purposes  to  the  earnings  of  the  corporation, 
net  or  other,  prior  to  a  dividend  being  declared,  but  they  might  be- 
come capital  by  investment  in  permanent  improvements  and  thereby 
increase  the  market  value  of  the  shares,  "  whether  held  by  the  orig- 
inal subscribers  or  by  assignees."  In  other  words,  it  was  held  that 
the  investments  of  the  corporation  were  the  investments  of  the  stock- 
holders; that  is,  the  stockliolders  could  have  an  interest,  taxable 
under  the  act  considered,  though  not  identical  with  the  corporation. 
This  was  repeated  in  Bailey  v.  Railroad  Co.,  22  Wall.  604,  635,  636. 

The  latter  case  came  here  again  in  106  U.  S.  109,  and  it  was  then 
declared  that  the  purpose  of  an  income  tax  law  was  to  tax  the  income 
for  the  year  that  it  accrued ;  in  other  words,  no  tax  in  contemplation 
of  the  law  accrues  upon  something  except  for  the  year  in  which  that 
something  —  earnings,  profits,  gains,  or  income  —  accrues.  In  that 
case  the  subject  of  the  tax  was  a  scrip  dividend,  but  the  certificate 
did  not  show  the  year  of  the  earnings  and  testimony  as  to  the  partic- 
ular year  was  admitted.  The  principle  applies  to  the  case  at  bar. 
If  increase  in  value  of  the  lands  was  income,  it  had  its  particular 
time  and  such  time  must  have  been  within  the  time  of  the  law  to  be 
subject  to  the  law,  that  is,  it  must  have  been  after  March  1,  1913. 
But,  according  to  the  fact  admitted,  there  was  no  increase  after  that 
date  and  therefore  no  increase  subject  to  the  law.  There  was  con- 
tinuity of  value,  not  gain  or  increase.  In  the  first  proposition  of  the 
Court  of  Appeals  we,  therefore,  concur. 

In  support  of  its  second  proposition  it  adduced,  as  we  have  seen, 
Gray  v.  Darlington,  15  Wall.  63.  The  case  arose  under  the  income 
tax  law  of  1867,  which  levied  "upon  the  gains,  profits,  and  income 
of  every  person,  .  .  .  whether  derived  from  any  kind  of  property 
.  ,  .  OT  from  any  other  source  whatever  ...  a  tax  of  5  per  centum 
on  the  amount  so  derived  over  $1,000  ...  for  the  year  ending  the 
thirty-first  of  December  next  preceding  the  time  for  levying,  collect- 
ing and  paying  said  tax." 

Darlington,  in  1865,  being  the  owner  of  certain  United  States 
Treasury  notes,  exchanged  them  for  United  States  bonds.  In  1869 
he  sold  the  bonds  at  an  advance  of  $20,000  over  the  cost  of  the  notes 
and  upon  this  amount  was  levied  a  tax  of  5  per  centum  as  gains, 
profits,  and  income  for  that  year.  He  paid  the  tax  under  protest  and 
sued  to  recover,  and  prevailed.  This  court,  by  Mr.  Justice  Field, 
said: 

"  The  question  presented  is  whether  the  advance  in  the  value  of  the 
bonds,  during  this  period  of  four  years,  over  their  cost,  realized  by 
their  sale,  was  subject  to  taxation  as  gains,  profits,  or  income  of  the 


SECT.  IV.]  SOUTIIEEN  PACIFIC  CO.  V.  LOWE.  403 

plaintifr  for  the  year  in  which  the  bonds  were  sold.  The  answer 
wliich  should  be  given  to  this  question  does  not,  in  our  judgment, 
admit  of  any  doubt.  The  advance  in  the  value  of  property  during 
a  series  of  years  can,  in  no  just  sense,  be  considered  tlie  gains,  profits, 
or  income  of  any  one  particular  year  of  the  series,  although  the  entire 
amount  of  the  advance  be  at  one  time  turned  into  money  by  the  sale 
of  the  property.  Tiie  statute  looks,  with  some  exceptions,  for  sub- 
jects of  taxation  only  to  annual  gains,  profits,  and  income." 

And  again : 

"The  mere  fact  lliat  property  lias  advanced  in  value  between  the 
date  of  its  acquisition  and  sale  docs  not  authorize  the  imposition  of 
a  tax  on  the  amount  of  the  advance.  Mere  advance  in  value  in  no 
sense  constitutes  the  gains,  profits,  or  income  specified  by  the  statute. 
It  constitutes  and  can  be  treated  merely  as  increase  of  capital." 

This  case  has  not  been  since  questioned  or  modified. 

The  Government  feels  the  impediment  of  the  case  and  attempts  to 
confine  its  ruling  to  the  exact  letter  of  the  act  of  March  2,  1867,  and 
thereby  distinguish  that  act  from  the  act  of  1913  and  give  to  the 
latter  something  of  retrospective  effect.  Opposed  to  this  there  is  a 
presumption,  resistless  except  against  an  intention  imperatively 
clear.  The  Government,  however,  makes  its  view  depend  upon  dis- 
putable differences  between  certain  words  of  the  two  acts.  It  urges 
that  the  act  of  1913  makes  the  income  taxed  one  "arising  or  accru- 
ing" in  the  preceding  calendar  year,  while  the  act  of  1867  makes  the 
income  one  "derived."  Granting  that  there  is  a  shade  of  difference 
between  the  words,  it  can  not  be  granted  that  Congress  made  that 
shade  a  criterion  of  intention  and  committed  the  construction  of  its 
legislation  to  the  disputes  of  purists.  Besides,  the  contention  of  the 
Government  does  not  reach  the  principle  of  Gray  v.  Darlington, 
which  is  that  the  gradual  advance  in  the  value  of  property  during  a 
series  of  years  in  no  just  sense  can  be  ascri])ed  to  a  particular  vear, 
not  therefore  as  "  arising  or  accruing,"  to  meet  the  challenge  of  the 
words,  in  the  last  one  of  the  years,  as  the  Government  contends,  and 
taxable  as  income  for  that  year  or  when  turned  into  cash.  Indeed, 
the  case  decides  that  such  advance  in  value  is  not  income  at  all,  but 
merely  increase  of  capital  and  not  subject  to  a  tax  as  income. 

We  concur,  therefore,  in  the  second  proposition  of  the  Circuit 
Court  of  Appeals  as  well  as  in  the  first  and  affirm  the  judgment. 

Bkaxdeis  and  Clarke,  JJ.,  concur  in  the  result. 


SOUTHEEX  PACIFIC  CO.  r.  LOWE. 
Supreme  Court  of  the  Uxited  States.     1918. 

[Reported  247  U.  S.  330.] 

Pitney,  J.  This  case  presents  a  question  arising  under  the 
Federal  income  tax  act  of  October  3,  1913  (ch.  16,  38  Stat.  114, 
166).     Suit  was  brought  by  plaintiff  in  error  against  the  collector 


404  SOrXHEKX   pacific    CO.    v.   LOWE.  [chap.    VII. 

to  recover  taxes  assessed  against  it  and  paid  under  protest.  There 
Avere  two  causes  of  action,  of  which  only  the  second  went  to  trial,  it 
having  been  stipulated  that  the  trial  of  the  other  might  be  postponed 
until  the  final  determination  of  this  one.  So  far  as  it  is  presented 
to  us,  the  suit  is  an  elt'ort  to  recover  a  tax  imposed  upon  certain  divi- 
dends upon  stock,  in  form  received  by  the  plaintiff  from  anotlier 
corporation  in  the  early  part  of  the  year  191-i,  and  alleged  by  the 
plaintiif  to  have  been  paid  out  of  a  surplus  accumulated  not  only 
prior  to  the  effective  date  of  the  act  but  prior  to  the  adoption  of  the 
sixteenth  amendment  to  the  Constitution  of  the  United  States.  The 
district  court  directed  a  verdict  and  judgment  in  favor  of  the  col- 
lector (238  Fed.  Kep.  847),  and  the  case  comes  here  by  direct  writ 
of  error  under  section  238,  Judicial  Code,  because  of  the  constitu- 
tional question.  That  our  jurisdiction  was  properly  invoked  is 
settled  by  Towne  v.  Eisner,  245  U.  S.  418,  425. 

The  case  was  submitted  at  the  same  time  with  several  other  cases 
arising  under  the  same  act  and  decided  this  day,  viz, :  Lynch,  col- 
lector, V.  Turrish,  and  Lynch,  collector,  v.  Hornby,  and  Peabody  v. 
Eisner,  collector. 

The  material  facts  are  as  follows:  Prior  to  January  1,  1913,  and 
at  all  times  material  to  the  case,  plaintiff,  a  corporation  organized 
under  the  laws  of  the  State  of  Kentucky,  owned  all  the  capital  stock 
of  the  Central  Pacific  Eailway  Co.,  a  corporation  of  the  State  of 
Ctah,  including  the  stock  registered  in  the  names  of  the  directors.^ 
This  situation  existed  continuously  from  the  incorporation  of  the 
railway  company  in  the  year  1899.  That  company  is  the  successor 
of  the  Central  Pacific  Railroad  Co.  and  acquired  all  of  its  properties, 
which  constitute  a  part  of  a  large  system  of  railways  owned  or  eon- 
trolled  by  the  Southern  Pacific  Co.  The  latter  company,  besides 
being  sole  stockholder,  was  in  the  actual  physical  possession  of  the 
railroads  and  all  other  assets  of  the  railway  company,  and  in  charge 
of  its  operations,  which  were  conducted  in  accordance  with  the  terms 
of  a  lease  made  by  the  predecessor  company  to  the  Southern  Pacific 
and  assumed  by  the  railway  company,  the  effect  of  which  was  that 
the  Southern  Pacific  should  pay  to  the  lessor  company  $10,000  per 
annum  for  organization  expenses,  should  operate  the  railroads, 
branches,  and  leased  lines  belonging  to  the  lessor,  and  account  annu- 
ally for  the  net  earnings,  and  if  these  exceeded  6  per  cent  on  the 
existing  capital  stock  of  the  lessor  the  lessee  should  retain  to  itself  one- 
half  of  the  excess;  advances  by  the  lessee  for  account  of  the  lessor 
were  to  bear  lawful  interest,  and  the  lessee  was  to  be  entitled  at  any 
time  and  from  time  to  time  to  refund  to  itself  its  advances  and  in- 
terest out  of  any  net  earnings  which  might  be  in  its  hands.  The 
provisions  of  the  lease  were  observed  by  both  corporations  for  book- 
keeping purposes.  The  Southern  Pacific  acted  as  cashier  and  banker 
for  the  entire  system;  the  Central  Pacific  kept  no  bank  account,  its 
earnings  being  deposited  with  tlie  1)ank  account  of  the  Southern 

*  There  was  another  question,  concerninj];  a  dividend  paid  hy  the  Reward 
Oil  Co.,  ■whose  stock  likewise  was  owned  by  the  Soutlicrn  Pacific  Co.,  but  the 
contention  of  plaintiff  in  error  respecting  this  item  has  been  abandoned. 


SECT.    IV.]  SOUTllEKX    TACIFIC    CO.    V.    LOWE.  405 

Pacific;  and  if  the  Central  Pacific  needed  money  for  additions  and 
betterments  or  for  makin^^  up  a  deficit  of  current  earnings  the  neces- 
sary funds  were  advanced  l;y  the  Southern  Pacific.  As  a  result  of 
these  operations  ami  of  the  conversion  of  certain  capital  assets  of  the 
Central  Pacific  Co.,  that  company  showed  upon  its  hooks  a  large 
surplus  accumulated  prior  to  January  1,  191;},  principally  in  the 
form  of  a  debit  against  the  Southern  Pacific,  wiiich  at  the  same  tiine, 
as  sole  stockholder,  was  entitled  to  any  and  all  dividends  that  might 
be  declared,  and  being  in  control  of  the  board  of  directors  was  able 
to  and  did  control  the  dividend  policy.  Tiie  dividends  in  question 
were  declared  and  paid  during  the  first  six  months  of  the  year  1914 
out  of  this  surplus  of  the  Central  Pacific  accumulated  prior  to  Janu- 
ary 1,  1913;  but  the  payment  was  only  constructive,  being  carried 
into  effect  by  bookkeeping  entries  which  simply  reduced  tlie  appar- 
ent surplus  of  the  Central  Pacific  and  reduced  the  apparent  indebted- 
ness of  the  Southern  Pacific  to  the  Central  Pacific  by  precisely  the 
amount  of  the  dividends. 

The  question  is  whether  the  dividends  received  under  these  cir- 
cumstances and  in  this  manner  by  the  Southern  Pacific  Co.  were 
taxable  as  income  of  that  company  under  the  income  tax  act  of 
1913.1 

The  act  provides  in  §  2,  par.  A,  subdiv.  1  (38  Stat.  166),  "that 
there  shall  be  levied,  assessed,  collected,  and  paid  annually  upon 
the  entire  net  income  arising  or  accruing  from  all  sources  in  the 
preceding  calendar  year"  to  every  person  residing  in  the  United 
States  a  tax  of  1  per  cent  per  annum,  with  exceptions  not  now 
material.  By  paragraph  G  (a)  (p.  172),  it  is  provided  "that  the 
normal  tax  hereinbefore  imposed  upon  individuals  [1  per  cent]  like- 
wise shall  be  levied,  assessed,  and  paid  annually  upon  the  entire  net 
income  arising  or  accruing  from  all  sources  during  the  preceding 
calendar  year  to  every  corporation  .  .  .  organized  in  the  United 
States,"  with  other  provisions  not  now  material. 

It  is  provided  in  paragraph  G  (b),  as  to  domestic  corporations, 
that  such  net  income  shall  be  ascertained  by  deducting  from  the 
gross  amount  of  the  income  of  the  corporation  (1)  ordinary  and 
necessary  expenses  paid  within  the  year  in  the  maintenance  and  op- 
eration of  its  business  and  properties,  including  rentals  and  the  like ; 
(3)  losses  sustained  within  the  year  and  not  compensated  by  insur- 
ance or  otherwise,  including  a  reasonable  allowance  for  depreciation 
by  use,  wear  and  tear  of  property,  if  any,  and  in  the  case  of  mines 
a  certain  allowance  for  depletion  of  ores  and  other  natural  deposits ; 
(3)  interest  accrued  and  paid  within  the  year  upon  indebtedness  of 
the  corporation,  within  the  prescribed  limits;  (4)  Xational  and 
State  taxes  paid.  It  will  be  observed  that  moneys  received  as  divi- 
dends upon  the  stock  of  other  corporations  are  not  deducted,  as  they 

*  In  addition,  a  question  was  made  in  the  "District  Court  as  to  a  special 
dividend  declared  by  the  Central  Pacific  out  of  the  proceeds  of  sale  of  cejtain 
land  on  Lonfr  Island,  taken  in  satisfaction  of  a  deht  and  sold  in  Decemher, 
1913.  As  to  this,  however,  no  argument  is  submitted  by  plaintiflf  in  error, 
the  facts  are  not  clear,  and  we  pass  it  without  consideration. 


406  SOUTHEKN   PACIFIC   CO.   V.   LOWE.  [cilAP.    Vil. 

are  in  computing  the  income  of  individuals  for  the  purpose  of  the 
normal  tax  under  this  act  (p.  167),  and  as  they  were  in  computing 
the  income  of  a  corporation  under  the  excise  tax  act  of  August  5, 
1909   (ch.  6,  36  Stat.  11,  llo,  §  38). 

By  paragraph  G  (c)  the  tax  upon  corporations  is  to  be  computed 
upon  the  entire  net  income  accrued  within  each  calendar  year,  but 
for  the  year  1913  only  upon  the  net  income  accrued  from  March  1 
to  December  31,  to  be  ascertained  by  taking  five-sixths  of  the  entire 
net  income  for  the  calendar  year. 

The  purpose  to  refrain  from  taxing  income  that  accrued  prior  to 
March  1,  1913,  and  to  exclude  from  consideration  in  making  the 
computation  any  income  that  accrued  in  a  preceding  calendar  year, 
is  made  plain  by  the  provision  last  referred  to;  indeed,  the  sixteenth 
amendment,  under  which  for  the  first  time  Congress  was  authorized 
to  tax  income  from  property  without  apportioning  the  tax  among  the 
States  according  to  population,  received  the  approval  of  the  requisite 
number  of  States  only  in  February,  1913.  Pollock  v.  Farmers'  Loan 
&  Trust  Co.,  157  U.  S.  429,  581;  158  U.  S.  601,  637;  Brushaber  v. 
Union  Pacific  Eailroad,  240  U.  S.  1,  16. 

We  must  reject  in  this  case,  as  we  have  rejected  in  cases  arising 
under  the  corporation  excise  tax  act  of  1909  (Doyle,  collector,  v. 
Mitchell  Bros.  Co.,  and  Hays,  collector,  v.  Gauley  Mountain  Coal  Co., 
decided  jMay  20,  1918),  the  broad  contention  submitted  in  behalf  of 
the  Government  that  all  receipts  —  everything  that  comes  in  —  are 
income  within  the  proper  definition  of  the  term  "  gross  income,"  and 
that  the  entire  proceeds  of  a  conversion  of  capital  assets,  in  whatever 
form  and  under  whatever  circumstances  accomplished,  should  be 
treated  as  gi'oss  income.  Certainly  the  term  "  income "  has  no 
broader  meaning  in  the  1913  act  than  in  that  of  1909  (see  Stratton's 
Independence  v.  Howbert,  231  U.  S.  399,  416,  417),  and  for  the 
present  purpose  we  assume  there  is  no  difference  in  its  meaning  as 
used  in  the  two  acts.  This  being  so,  we  are  bound  to  consider  ac- 
cumulations that  accrued  to  a  corporation  prior  to  January  1,  1913, 
as  being  capital,  not  income,  for  the  purposes  of  the  act.  And  we 
perceive  no  adequate  ground  for  a  distinction,  in  this  regard,  between 
an  accumulation  of  surplus  earnings,  and  the  increment  due  to  an 
appreciation  in  value  of  the  assets  of  the  taxpayer. 

That  the  dividends  in  question  were  paid  out  of  a  surplus  that 
accrued  to  the  Central  Pacific  prior  to  January  1,  1913,  is  undis- 
puted ;  and  we  deem  it  to  be  equally  clear  that  this  surplus  accrued 
to  the  Southern  Pacific  Co.  prior  to  that  date,  in  every  substantial 
sense  pertinent  to  the  present  inquiry,  and  hence  underwent  nothing 
more  than  a  change  of  form  when  the  dividends  were  declared. 

We  do  not  rest  this  upon  the  view  that  for  the  purposes  of  the  act 
of  1913  stockholders  in  the  ordinary  case  have  the  same  interest  in 
the  accumulated  earnings  of  the  company  before  as  after  the  decla- 
ration of  dividends.  The  act  is  quite  different  in  this  respect  from 
the  income  tax  act  of  June  30,  1864  (cli.  173, 13  Stat.  223,  281,  282), 
under  which  this  court  held,  in  Collector  v.  Hubbard,  12  Wall.  1,  16, 
that  an  individual  was  taxable  upon  his  proportion  of  the  earnings 


ajiOT.  iv.j  BouxnifiiiN  pacific  CO.  v.  lowe.  407 

of  the  corporation  although  not  declared  as  dividends.  That  de- 
cision was  based  upon  the  very  special  language  of  a  clause  of  section 
117  of  the  act  (13  Stat.  2H2)  that  "the  gains  and  profits  of  all 
companies  whether  incorporated  or  partnership,  other  tlian  the  com- 
panies specified  in  this  section,  shall  be  included  in  estimating  the 
annual  gains,  profits,  or  income  of  any  person  entitled  to  the  same, 
whether  divided  or  otherwise."  The  act  of  l'J13  contains  no  eimilar 
language,  but  on  the  contrary  deals  with  dividends  as  a  particular 
item  of  income,  leaving  them  free  from  the  normal  tax  imposed  upon 
indiviihials,  subjecting  them  to  the  graduated  surtaxes  only  when 
received  as  dividends  (38  Stat.  1G7,  par.  B),  and  subjecting  the  in- 
terest of  an  individual  shareholder  in  the  undivided  gains  and  profits 
of  his  cori)oration  to  these  taxes  only  in  case  the  company  is  formed 
or  fraudulently  availed  of  for  the  purpose  of  preventing  the  imposi- 
tion of  such  tax  by  permitting  gains  and  profits  to  accumulate  instead 
of  being  divided  or  distributed.  Our  view  of  the  effect  of  this  act 
upon  dividends  received  by  the  ordinary  stockholder  after  it  took 
effect  but  paid  out  of  a  surplus  tliat  accrued  to  the  corporation  before 
that  event,  is  set  forth  in  Lynch,  collector,  v.  Hornby,  decided  this 
day. 

We  base  our  conclusion  in  the  present  case  upon  the  view  that  it 
was  the  purpose  and  intent  of  Congress,  while  taxing  "  the  entire  net 
income  arising  or  accruing  from  all  sources  "  during  each  year  com- 
mencing with  the  first  day  of  March,  1913,  to  refrain  from  taxing 
that  which  in  mere  form  only,  bore  the  appearance  of  income  accru- 
ing after  that  date,  wliile  in  truth  and  in  substance  it  accrued  before; 
and  upon  the  fact  that  the  Central  Pacific  and  the  Southern  Pacific 
were  in  substance  identical  because  of  the  complete  ownership  and 
control  which  the  latter  possessed  over  the  former,  as  stockholder 
and  in  other  capacities.  While  the  two  companies  were  separate 
legal  entities,  yet  in  fact,  and  for  all  practical  purposes  they  were 
merged,  the  former  being  but  a  part  of  the  latter,  acting  merely  as 
its  agent  and  sul)ject  in  all  things  to  its  proper  direction  and  control. 
And,  besides,  the  funds  represented  by  the  dividends  were  in  the 
actual  possession  and  control  of  the  Southern  Pacific  as  well  before 
as  after  the  declaration  of  the  dividends.  The  fact  that  the  books 
were  kept  in  accordance  with  the  provisions  of  the  lease,  so  that 
these  funds  appeared  upon  the  accounts  as  an  indebtedness  of  the 
lessee  to  the  lessor,  can  not  be  controlling,  in  view  of  the  practical 
identity  between  lessor  and  lessee.  Aside  from  the  interests  of  cred- 
itors and  the  public  —  and  there  is  nothing  to  suggest  that  the  in- 
terests of  either  were  concerned  in  the  disposition  of  the  surplus  of 
the  Central  Pacific  —  the  Southern  Pacific  was  entitled  to  dispose  of 
the  matter  as  it  saw  fit.  There  is  no  question  of  there  being  a  surplus 
to  warrant  the  dividends  at  the  time  they  were  made,  hence  any 
speculation  as  to  what  might  have  happened  in  case  of  financial  re- 
verses that  did  not  occur  is  beside  the  mark. 

It  is  true  that  in  ordinary  cases  the  mere  accumulation  of  an  ade- 
quate surplus  does  not  entitle  a  stockliolder  to  dividends  until  the 
directors  in  their  discretion  declare  them.     Xew  York,  etc..  Rail- 


•iOS  LYXCH  V.  HORNBY.  [ciIAP.    VII. 

road  i'.  Nickals,  119  U.  S.  296,  306;  Gibbons  v.  Mahan,  136  U.  S. 
5-19,  558.  And  see  Humphreys  v.  McKissock,  1-10  U.  S.  30-1,  312. 
But  this  is  not  the  ordinary  case.  In  fact  the  discretion  of  the  di- 
rectors was  affirmatively  exercised  by  declaring  dividends  out  of  the 
surplus  that  was  accumulated  prior  to  January  1,  1913;  it  does  not 
appear  that  any  other  fair  exercise  of  discretion  was  open;  and  the 
complete  ownership  and  right  of  control  of  the  Southern  Pacific  at 
all  times  material  makes  it  a  matter  of  indifference  whether  the  vote 
was  at  one  time  or  another.  Under  the  circumstances,  the  entire 
matter  of  the  declaration  and  payment  of  the  dividends  was  a  paper 
transaction  to  bring  the  books  into  accord  with  the  acknowledged 
rights  of  the  Southern  Pacific;  and  so  far  as  the  dividends  repre- 
sented the  surplus  of  the  Central  Pacific  that  accumulated  prior  to 
January  1,  1913,  they  were  not  taxable  as  income  of  the  Southern 
Pacific  within  the  true  intent  and  meaning  of  the  act  of  1913. 

The  case  turns  upon  its  very  peculiar  facts,  and  is  distinguishable 
from  others  in  which  the  question  of  the  identity  of  a  controlling 
stockholder  with  his  corporation  has  been  raised.  Pullman  Car  Co. 
V.  Missouri  Pacific  Co.,  115  U.  S.  587,  596;  Peterson  v.  Chicago, 
Eock  Island  &  Pacific  Railway,  205  U.  S.  364,  391. 

Judgment  reversed,  and  the  cause  remanded  for  further  proceed- 
ings in  conformity  with  this  opinion. 

Claeke^  J.,  dissents. 


LYNCH  V.  HOEXBY. 
Supreme  Court  of  the  TJxited  States.    1918. 

[Reported  247   U.  8.  339.] 

PiTXEY,  J.  Hornby,  the  respondent,  recovered  a  judgment  in  the 
United  States  District  Court  against  Lynch,  as  collector  of  internal 
revenue,  for  the  return  of  $171,  assessed  as  an  additional  income  tax 
under  the  act  of  October  3,  1913  (ch.  16,  38  Stat.  114,  166),  and 
paid  under  protest.  The  Circuit  Court  of  Appeals  affirmed  the  judg- 
ment (236  Fed.  661),  and  the  case  comes  here  on  certiorari.  It  was 
submitted  at  the  same  time  with  Lynch,  collector,  v.  Turrish,  South- 
ern Pacific  Co.  V.  Lowe,  collector,  and  Peabody  v.  Eisner,  collector, 
arising  under  the  same  act,  and  this  day  decided. 

The  facts,  in  brief,  are  as  follows:  Hornby,  from  1906  to  1915,  was 
the  owner  of  434  (out  of  10,000)  shares  of  the  capital  stock  of  the 
Cloquet  Lumber  Co.,  an  Iowa  corporation,  which  for  more  than  a 
quarter  of  a  century  had  been  engaged  in  purchasing  timber  lands, 
manufacturing  the  timber  into  lumber  and  selling  it.  Its  shares  had 
a  par  value  of  $100  each,  making  the  entire  capital  stock  $1,000,000. 
On  and  prior  to  March  1,  1913,  by  the  increase  of  the  value  of  its 
timber  lands  and  through  its  business  operations,  the  total  property 
of  the  company  had  come  to  be  worth  $4,000,000,  and  Hornby's  stock, 
the  par  value  of  which  was  $43,400,  had  become  worth  at  least 


SECT.    IV.]  LYNCH    I',    llOKNBY.  409 

$150,000.  In  the  year  1914  the  company  was  engaged  in  cutting  its 
standing  timber,  manufacturing  it  into  lumber,  selling  the  lumber, 
and  di.stribulin^f  the  proceeds  among  its  stockholders.  In  that  year 
it  thus  distributed  dividends  aggregating  $050,000,  of  which  $240,- 
000,  or  24  per  cent  of  tlie  par  vahie  of  the  capital  stock,  was  derived 
from  current  earnings,  and  $410,000  from  conversion  into  money  of 
property  that  it  owned  or  in  which  it  had  an  interest  on  Marcli  1, 
1913.  Hornby's  share  of  the  latter  amount  was  $17,794,  and  this 
not  having  been  included  in  his  income  tax  return,  the  Commissioner 
of  Internal  Revenue  levied  an  additional  tax  of  $171  on  account  of 
it,  and  this  forms  the  subject  of  the  present  suit. 

The  case  was  tried  in  the  District  Court  and  argued  in  the  Circuit 
Court  of  Appeals  together  with  Lynch,  collector,  v.  Turrish,  236 
Fed.  653,  and  was  treated  as  presenting  substantially  the  same 
question  upon  the  merits.  In  our  opinion  it  is  distinguishable  from 
the  Tui'rish  case,  where  the  distribution  in  question  was  a  single 
and  final  dividend  received  by  Turrish  from  the  Payette  Co.  in  liqui- 
dation of  the  entire  assets  and  business  of  the  company  and  a  return 
to  him  of  the  value  of  his  stock  upon  the  surrender  of  his  entire  in- 
terest in  the  company,  at  a  price  that  represented  its  intrinsic  value 
at  and  before  ]\Iarch  1,  1913,  when  the  income  tax  act  took  effect. 

In  the  present  case  there  was  no  winding  up  or  liquidation  of  the 
Cloquet  Lumber  Co.  nor  any  surrender  of  Hornby's  stock.  He  was 
but  one  of  many  stockholders,  and  liad  but  the  ordinary  stock- 
holder's interest  in  the  capital  and  surplus  of  the  company  —  that  is, 
a  right  to  have  them  devoted  to  the  proper  business  of  the  corporation 
and  to  receive  from  the  current  earnings  or  accumulated  surplus 
such  dividends  as  the  directors  in  their  discretion  might  declare. 
Gibbons  v.  Mahon,  136  U.  S.  549,  557.  The  operations  of  this  com- 
pany in  the  year  1914  were,  according  to  the  facts  pleaded,  of  a 
nature  essentially  like  those  in  which  it  had  been  engaged  for  more 
than  a  quarter  of  a  century.  The  fact  that  they  resulted  in  convert- 
ing into  money,  and  thus  setting  free  for  distribution  as  dividends, 
a  part  of  its  surplus  assets  accumulated  prior  to  March  1,  1913,  does 
not  render  Hornby's  share  of  those  dividends  any  the  less  a  part  of 
his  income  -snthin  the  true  intent  and  meaning  of  the  act,  the  perti- 
nent language  of  which  is  as  follows  (38  Stat.  166,  167)  : 

"A.  Sul)division  1.  That  there  shall  be  levied,  assessed,  collected, 
and  paid  annually  upon  the  entire  net  income  arising  or  accruing 
from  all  sources  in  the  preceding  calendar  year  to  every  citizen  of 
the  United  States,  .  .  .  and  to  every  person  residing  in  the  United 
States,  ...  a  tax  of  1  per  centum  per  annum  upon  such  income, 
except  as  hereinafter  provided;  .  .  . 

"  B.  That,  subject  only  to  such  exemptions  and  deductions  as  are 
hereinafter  allowed,  the  net  income  of  a  taxal)le  person  shall  include 
gains,  profits,  and  income  derived  from  salaries,  wages,  or  compen- 
sation for  personal  service,  .  .  .  also  from  interest,  rent,  dividends, 
securities,  or  the  transaction  of  any  lawful  business  carried  on  for 
gain  or  profit,  gains  or  profits  and  income  derived  from  any  source 
whatever." 


410  LYNCH  V.  HOKNBY.  [cilAP.    VII. 

Among  the  deductions  allowed  for  the  purpose  of  the  normal  tax 
is  '*'  seventh,  the  amount  received  as  dividends  upon  the  stock  or  from 
the  net  earnings  of  any  corporation,  .  .  .  which  is  taxable  upon  its 
net  income  as  hereinafter  provided."  There  is  a  graduated  additional 
tax,  commonly  known  as  a  "  surtax,''  upon  net  income  in  excess  of 
$'^0,000,  including  income  from  dividends,  and  for  the  purpose  of 
this  additional  tax  ''the  taxable  income  of  any  individual  shall  em- 
brace the  share  to  which  he  would  be  entitled  of  the  gains  and  profits, 
if  divided  or  distributed,  whether  divided  or  distributed  or  not,  of 
all  corporations  .  .  .  formed  or  fraudulently  availed  of  for  the  pur- 
pose of  preventing  the  imposition  of  such  tax  through  the  medium 
of  permitting  such  gains  and  profits  to  accunmlate  instead  of  being 
divided  or  distributed." 

It  is  evident  that  Congress  intended  to  draw  and  did  draw  a  dis- 
tinction between  a  stockholder's  undivided  share  or  interest  in  the 
gains  and  profits  of  a  corporation  prior  to  the  declaration  of  a  divi- 
dend, and  liis  participation  in  the  dividends  declared  and  paid,  treat- 
ing the  latter  in  ordinary  circumstances  as  a  part  of  his  income  for 
the  purposes  of  the  surtax,  and  not  regarding  the  former  as  taxable 
income  unless  fraudulently  accumulated  for  the  purpose  of  evading 
the  tax. 

This  treatment  of  undivided  profits  applies  only  to  profits  per- 
mitted to  accumulate  after  the  taking  effect  of  the  act,  since  only 
with  respect  to  these  is  a  fraudulent  purpose  of  evading  the  tax 
predicable.  Corporate  profits  that  accumulated  before  the  act  took 
effect  stand  on  a  different  footing.  As  to  these,  however,  just  as  we 
deem  the  legislative  intent  manifest  to  tax  the  stockholder  with  re- 
spect to  such  accumulations  only  if  and  when  and  to  the  extent  that 
his  interest  in  them  comes  to  fruition  as  income — that  is,  in  dividends 
declared  —  so  we  can  perceive  no  constitutional  obstacle  that  stands 
in  the  way  of  carrying  out  this  intent  when  dividends  are  declared 
out  of  a  pre-existing  surplus.  The  act  took  effect  on  March  1,  1913, 
a  few  days  after  the  requisite  number  of  States  had  given  approval 
to  the  sixteenth  amendment,  under  which  for  the  first  time  Congress 
was  empowered  to  tax  income  from  property  without  apportioning 
the  tax  among  the  States  according  to  population.  Southern  Pacific 
Co.  V.  Lowe,  supni.  That  the  retroactivity  of  the  act  from  the  date 
of  its  passage  (October  3,  1913)  to  a  date  not  prior  to  the  adoption  of 
the  amendment  was  permissible  is  settled  by  Brnshaber  v.  Union 
Pacific  Eailroad,  240  U.  S.  1,  20.  And  we  deem  it  equally  clear 
that  Congress  was  at  lil^erty  under  the  amendment  to  tax  as  income, 
without  apportionment,  everything  that  became  income  in  the  ordi- 
nary sense  of  the  word  after  the  adoption  of  the  amendment,  includ- 
ing dividends  received  in  the  ordinary  course  by  a  stockholder  from  a 
corporation,  even  though  they  were  extraordinary  in  amount  and 
might  appear  upon  analysis  to  be  a  mere  realization  in  possession  of 
an  inchoate  and  contingent  interest  that  the  stockholder  had  in  a 
surplus  of  corporate  assets  previously  existing.  Dividends  are  the 
appropriate  fruit  of  stock  ownership,  are  commonly  reckoned  as  in- 
come, and  are  expended  as  such  by  the  stockholder  without  regard 


SECT.    IV.]  LYNCH    V.    HOKXBY.  411 

to  whether  thoy  are  rleclared  from  the  most  recent  earnings  or  from 
a  surplus  accuiuuhited  from  the  earnings  of  the  past  or  are  based 
upon  tlie  increased  value  of  the  property  of  the  corporation.  The 
stockliolder  is  in  the  ordinary  case  a  dill'erent  entity  from  the  corpo- 
ration, and  Congress  was  at  liberty  to  treat  the  dividends  as  coming 
to  him  ab  extra  and  as  constituting  a  part  of  his  income  wlien  they 
came  to  hand. 

Hence  we  construe  tlie  provision  of  the  act  that  "the  net  income 
of  a  taxable  person  shall  include  gains,  profits,  and  income  derived 
from  .  .  .  interest,  rent,  dividends,  ...  or  gains  or  profits  and  in- 
come derived  from  any  source  whatever"  as  including  (for  the  pur- 
poses of  the  additional  ta.x)  all  dividends  declared  and  paid  in  the 
ordinary  course  of  business  by  a  corporation  to  its  stockholders  after 
the  taking  effect  of  the  act  (March  1,  1913),  whether  the  current 
earnings  or  from  the  accumulated  surplus  made  up  of  past  earnings 
or  increase  in  value  of  corporate  assets,  notwithstanding  it  accrued  to 
the  corporation  in  whole  or  in  ])art  prior  to  March  1,  1913.  In  short, 
the  word  "dividends"  was  employed  in  the  act  as  descriptive  of  one 
kind  of  gain  to  the  individual  stockholder,  dividends  being  treated 
as  the  tangible  and  recurrent  returns  upon  his  stock,  analogous  to 
the  interest  and  rent  received  upon  other  forms  of  invested  capital. 

In  the  more  recent  income  tax  acts,  provisions  have  been  inserted 
for  the  purpose  of  excluding  from  the  effect  of  the  tax  any  dividends 
declared  out  of  earnings  or  profits  that  accrued  prior  to  March  1, 
1913.  This  originated  with  the  act  of  September  8,  1916,  and  has 
been  continued  in  the  act  of  October  3,  1917.  We  are  referred  to 
the  legislative  history  of  the  act  of  1916,  which  it  is  contended  indi- 
cates that  the  new  definition  of  the  term  "dividends"  was  intended 
to  be  declaratory  of  the  meaning  of  the  term  as  used  in  the  1913 
act.  We  can  not  accept  this  suggestion,  deeming  it  more  reasonable 
to  regard  tlie  change  as  a  concession  to  the  equity  of  stockholders 
granted  in  the  1916  act,  in  view  of  constitutional  questions  that  had 
been  raised  in  this  case,  in  the  companion  case  of  Lynch,  collector, 
V.  Turrish,  and  perhaps  in  other  cases.  These  two  cases  were  com- 
menced in  October,  1915,  and  decisions  adverse  to  the  tax  were  ren- 
dered in  the  District  Court  in  January,  1916,  and  in  the  Circuit 
Court  of  Appeals  September  4.  1916. 

We  repeat  that  under  the  1913  act  dividends  declared  and  paid  in 
the  ordinary  course  by  a  corporation  to  its  stockholders  after  March 
1,  1913,  whether  from  current  earnings  or  from  a  surplus  accumu- 
lated prior  to  that  date,  were  taxable  as  income  to  the  stockholder. 

We  do  not  overlook  the  fact  that  every  dividend  distribution  di- 
minishes by  just  so  much  the  assets  of  the  corporation,  and  in  a  theo- 
retical sense  reduces  the  intrinsic  value  of  the  stock.  But,  at  the 
same  time,  it  demonstrates  the  capacity  of  the  corporation  to  pay 
dividends,  holds  out  a  promise  of  further  dividends  in  the  future, 
and  quite  probably  increases  the  market  value  of  the  shares.  In  our 
opinion.  Congress  laid  hold  of  dividends  paid  in  the  ordinary  course 
as  de  facto  income  of  the  stockholder,  without  regard  to  the  ultimate 
effect  upon  the  corporation  resulting  from  their  payment. 


412  PEABODY    V.    EISNER.  [cHAP.    VII. 

Of  course,  we  are  dealing  here  with  the  ordinary  stockholder  re- 
ceiving dividends  declared  in  the  ordinary  way  of  business.  Lynch, 
collector,  v.  Turrish  and  Southern  Pacific  Co.  v.  Lowe,  collector,  this 
day  decided,  rest  upon  their  special  facts  and  are  plainly  distinguish- 
able. 

It  results  from  what  we  have  said  that  it  was  erroneous  to  award 
a  return  of  the  tax  collected  from  the  respondent,  and  that  the  judg- 
ment should  be 

Keversed,  and  the  cause  remanded  to  the  district  court  for  further 
proceedings  in  conformity  with  this  opinion. 


PEABODY  V.  EISNEE. 
Supreme  Court  of  the  United  States.    1918. 

[Reported  247  U.  8.  347.] 

Pitney,  J.  This  case  arose  under  the  Federal  income  tax  act  of 
October  3,  1913  (ch.  16,  38  Stat.  Ill,  166).  The  controversy  is 
over  the  first  cause  of  action  set  up  by  plaintiff  in  error  in  a  suit 
against  the  collector  for  the  recovery  of  an  additional  tax  exacted  in 
respect  of  a  certain  dividend  received  by  plaintiff  in  the  year  1914, 
the  facts  being  as  follows:  On  and  prior  to  March  1,  1913,  and 
thenceforward  until  payment  of  the  dividend  in  question,  petitioner 
was  owner  of  1,100  shares  (out  of  a  total  of  2,000,000  shares  out- 
standing) of  common  stock  of  the  Union  Pacific  Eailroad  Co.,  of 
the  par  value  of  $100  each,  and  during  the  same  period  the  company 
had  large  holdings  of  the  common  and  preferred  stocks  of  the  Balti- 
more &  Ohio  Eailroad  Co.  On  March  2,  1914,  the  Union  Pacific 
declared  and  paid  an  extra  dividend  upon  each  share  of  its  common 
stock,  amounting  to  $3  in  cash,  $12  in  par  value  of  preferred  stock 
of  the  Baltimore  &  Ohio,  and  $22.50  in  par  value  of  the  common 
stock  of  the  same  company;  the  result  l)eing  that  petitioner  received 
as  his  dividend  upon  his  holding  of  Union  Pacific  common  stock 
$3,300  in  cash,  132  shares  of  Baltimore  &  Ohio  preferred  and  2471/0 
shares  of  Baltimore  &  Ohio  common  stock.  In  his  income  return  for 
1914  he  included  as  taxable  income  $4.12  per  share  of  this  dividend, 
or  $4,532  in  all,  and  paid  his  tax  upon  the  basis  of  this  return. 
Afterwards  he  was  subjected  to  an  additional  assessment  upon  a 
valuation  of  the  balance  of  his  dividend,  and  this,  having  been  paid 
under  protest,  is  the  subject  of  the  present  suit,  tlie  theory  of  which 
is  that  the  entire  earnings,  income,  gains,  and  profits  from  all  sources 
realized  by  the  Union  Pacific  Eailroad  Co.  from  March  1,  1913.  to 
March  2,  1914,  remaining  after  the  payment  of  prior  charges,  did  not 
exceed  $4.12  per  share  of  the  Union  Pacific  common  stock,  and  that 
the  cash  and  Baltimore  &  Ohio  stock  disposed  of  in  the  extra  divi- 
dend (so  far  as  they  exceeded  the  value  of  $4.12  per  share  of  Union 
Pacific)   did  not  constitute  a  gain,  profit,  or  income  of  the  Union 


SECT.  IV.]         GULF  OIL  CORPORATION  V.  LEWELLYN.  413 

Pacific,  and  therefore  did  not  constitute  a  gain,  profit,  or  income  of 
the  plain  tilt'  arising  or  accruing  either  in  or  for  the  year  1914  or  for 
any  period  subsequent  to  March  1,  11)13,  the  date  when  the  income 
tax  law  took  effect.  The  District  Court  overruled  tiiis  contention 
upon  the  authority  of  Southern  Pacific  Co.  v.  Lowe,  :^38  Fed.  847, 
and  Towne  v.  Eisner,  24:^  Ped.  70:^.  'J'he  latter  case  has  since  been 
reversed  (245  U.  S.  418),  but  only  upon  the  ground  that  it  related 
to  a  stock  dividend  wliich  in  fact  took  nothing  from  the  property  of 
the  corporation  and  added  nothing  to  the  interest  of  the  shareholder, 
but  merely  changed  the  evidence  which  represented  that  interest. 
Southern  Pacific  Co.  v.  Lowe,  collector,  has  been  reversed  this  day, 
but  only  upon  the  ground  that  the  Central  Pacific  Railway  Co., 
which  paid  the  dividend,  and  the  Southern  Pacific  Co.,  which  re- 
ceived it,  were  in  substance  identical  corporations  because  of  the 
complete  ownership  and  control  which  the  latter  possessed  over  the 
former  as  stockholder  and  in  other  capacities,  so  that  while  the  two 
companies  were  separate  legal  entities,  yet  in  fact  and  for  all  practical 
purposes  the  former  was  but  a  part  of  the  latter,  acting  merely  as  its 
agent  and  subject  in  all  things  to  its  direction  and  control ;  and  for 
the  further  reason  that  the  funds  represented  by  the  dividend  were 
in  the  actual  possession  and  control  of  the  Southern  Pacific  Co.  as 
well  before  as  after  the  declaration  of  the  dividend.  In  this  case  the 
plaintiff  in  error  stands  in  the  position  of  the  ordinary  stockholder, 
whose  interest  in  the  accumulated  earnings  and  surplus  of  the  com- 
pany are  not  the  same  before  as  after  the  declaration  of  a  dividend; 
his  right  being  merely  to  have  the  assets  devoted  to  the  proper  busi- 
ness of  the  corporation  and  to  receive  from  the  current  earnings  or 
accumulated  surplus  such  dividends  as  the  directors  in  their  discre- 
tion may  declare;  and  without  right  or  power  on  his  part  to  control 
that  discretion. 

It  hardly  is  necessary  to  say  that  this  case  is  not  ruled  by  our  de- 
cision in  Towne  v.  Eisner,  since  the  dividend  of  Baltimore  &  Ohio 
shares  was  not  a  stock  dividend  hut  a  distribution  in  specie  of  a 
portion  of  the  assets  of  the  Union  Pacific,  and  is  to  be  governed  for 
all  present  purposes  by  the  same  rule  applicable  to  the  distribution 
of  a  like  value  in  money.  It  is  controlled  by  Lynch,  collector,  v. 
Hornby,  this  day  decided. 

Judgment  affirmed. 


GULF  OIL  CORPORATION  v.  LEWELLYN". 
SuPKEME  Court  of  the  United  States.     1918. 

[Reported  248  U.  8.  7\.] 

Holmes,  J.  This  is  a  suit  to  recover  a  tax  levied  upon  certain 
dividends  as  income  under  the  act  of  October  3,  1913  (ch.  6,  §  2, 
38  Stat.  114,  166).    The  District  Court  gave  judgment  for  the  plain- 


414  GVLF  OIL   CORPORATION  V.  LEWELLYN.  [cHAP.    VH. 

tiff  (242  Fed.  7Ui)),  but  this  judgment  was  reversed  by  the  Circuit 
Court  of  Appeals  (245  Fed.  1,  158  C.  C.  A.  1). 

The  facts  may  be  abridged  from  the  findings  below  as  follows: 
The  petitioner  was  a  holding  company  owning  all  the  stock  in  the 
other  corporations  concerned  except  the  qualifying  shares  held  by 
directors.  These  companies  with  others  constituted  a  single  enter- 
prise, carried  on  by  the  petitioner,  of  producing,  buying,  transporting, 
refining,  and  selling  oil.  Tlie  subsidiary  companies  had  retained 
their  earnings,  although  making  some  loans  inter  se,  and  all  their 
funds  were  invested  in  properties  or  actually  required  to  carry  on 
the  business,  so  that  the  debtor  companies  had  no  money  available 
to  pay  their  debts.  In  January,  1913,  the  petitioner  decided  to  take 
over  the  previously  accumulated  earnings  and  surplus  and  did  so  in 
that  year  by  votes  of  the  companies  that  it  controlled.  But,  disre- 
garding the  forms  gone  through,  the  result  was  merely  that  the  peti- 
tioner became  the  holder  of  the  debts  previously  due  from  one  of  its 
companies  to  another.  It  was  no  richer  than  before,  but  its  property 
now  was  represented  by  stock  in  and  debts  due  from  its  subsidiaries, 
whereas  formerly  it  was  represented  by  the  stock  alone,  the  change 
being  effected  by  entries  upon  the  respective  companies'  books.  The 
earnings  thus  transferred  had  been  accumulated  and  had  been  used 
as  capital  before  the  taxing  year.  Lynch  v.  Turrish,  247  U.  S.  221, 
228. 

We  are  of  opinion  that  the  decision  of  the  District  Court  was  right. 
It  is  true  that  the  petitioner  and  its  subsidiaries  were  distinct  beings 
in  contemplation  of  law,  but  the  facts  that  they  were  related  as 
parts  of  one  enterprise,  all  owned  by  the  petitioner,  that  the  debts 
were  all  enterprise  debts  due  to  members,  and  that  the  dividends 
represented  earnings  that  had  been  made  in  former  years  and  that 
practically  had  been  converted  into  capital,  unite  to  convince  us  that 
the  transaction  should  be  regarded  as  bookkeeping  rather  than  as 
"  dividends  declared  and  paid  in  the  ordinary  course  by  a  corpora- 
tion." L}T3ch  V.  Hornby,  247  U.  S.  339,  346.  The  petitioner  did 
not  itself  do  the  business  of  its  subsidiaries  and  have  possession  of 
their  property  as  in  Southern  Pacific  Co,  v.  Lowe,  247  U.  S.  330, 
but  the  principle  of  that  case  must  be  taken  to  cover  this.  By 
§  2,  G  (c)  (38  Stat.  174)  and  S  (Id.,  202),  the  tax  from  January 
1  to  February  28,  1913,  is  levied  as  a  special  excise  tax,  but  in  view 
of  our  decision  that  the  dividends  here  concerned  were  not  income, 
it  is  unnecessary  to  discuss  the  further  question  that  has  been  raised 
under  the  latter  clause  as  to  the  effect  of  the  fact  that  excise  taxes 
upon  the  subsidiary  corporations  had  been  paid. 

Judgment  reversed. 


SECT.    IV.]  DOEESCHUCK    V.    UNITED    STATES.  415 


DOERSCHUCK  v.  UNITED  STATES. 
District  Couht  of  the  United  States.     1921. 

[Reported  274  Fed.  730.] 

CiiATFiELD,  J.  The  plaintiir  in  cacli  of  the  above  actions  has  paid 
income  tax  on  one-quarter  of  an  issue  of  debenture  Ijonds  of  the 
North  American  Jirewing  Company,  which  came  into  the  hands  of 
the  phiintills  because  of  the  uwiiershij)  by  each  of  1,'^;30  shares  (or 
one-quarter)  of  the  entire  capital  stock  of  said  North  American 
Brewing  Company.  The  directors  of  said  corporation  liad  voted  an 
issue  of  $T;)8,0UU  of  debenture  bonds  from  a  surplus  or  undivided 
profits  amounting  to  $840,368.09,  which  had  accrued  between  1906 
and  July  1,  1916. 

The  portion  of  the  bonds  representing  surplus  earned  before 
March  1,  1913,  was  not  taxed  and  hence  is  not  involved  in  these 
actions.  The  balance,  viz.,  $262,334.44  was  assessed  as  income  for 
the  year  1916,  during  which  year  each  of  the  plaintiffs  had  received 
his  one-quai-ter  part  of  said  funds. 

In  the  case  of  Eisner  v.  Macomber,  252  U.  S.  189,  shares  of  stock 
were  issued  in  the  form  of  a  dividend  to  stockholders,  leaving  owner- 
ship of  the  property  in  the  stockholders  the  same  as  before  the  issu- 
ance; that  is,  the  property  representing  the  value  of  the  stock  was 
the  same,  and  the  only  change  was  that  each  stockholder  held  two 
certificates  representing  in  the  aggregate  and  in  theory  the  same 
stock  value  as  previously  had  been  represented  by  one  certificate. 
It  was  held  in  that  case  that  sucli  stock  dividend  was  not  equivalent, 
for  the  purposes  of  income  tax,  to  the  payment  of  a  dividend  in  prop- 
erty or  in  cash,  and  was  not  to  be  taxable  as  income  under  the  law 
of  September  8,  1916,  sections  1,  2,  ahd  3. 

The  plaintiffs  in  the  present  action  rely  upon  the  case  of  In  re 
Fechheimer  Fishel  Co.,  212  Fed.  357,  which  holds  that  debenture 
bonds,  having  the  characteristic  features  of  preferred  stock,  are, 
from  the  standpoint  of  creditors  of  the  corporation  when  the  corpo- 
ration becomes  insolvent,  no  different  than  such  preferred  stock. 

It  would  follow  from  tliis  that  for  the  purpose  of  liquidation  or 
dissolution  of  the  corporation,  or  for  consideration  in  insolvency  or 
bankruptcy  proceedings,  such  debenture  holders  would  not  rank  as 
general  creditors. 

Plaintiffs  also  cite  the  case  of  Cass  v.  Realty  Securities  Co.,  148 
App.  Div.  96,  which  held  that  bonds  having  a  definite  date  and  con- 
ditioned as  were  the  debenture  bonds  in  the  present  action,  were  for 
the  purposes  under  consideration  in  that  case  equivalent  to  preferred 
stock  and  should  not  be  considered  as  bonds  in  the  usual  meaning  of 
that  word. 

It  has  been  held  in  Peabody  v.  Eisner,  247  U.  S.  347,  that  a  divi- 
dend of  shares  in  another  corporation  is  taxable  as  income  of  tho 


416  UNITED  STATES  V.  GUINZBEEG.  [CHAP.  VII. 

corporation  owning  the  shares  and  distributing  it  as  a  dividend  in 
specie  rather  than  in  money. 

In  Stratton's  Independence  v.  Howbert,  231  U.  S.  399,  it  was  held 
that  the  transformation  of  ores  in  a  mine  into  cash  proceeds  through 
the  business  of  mining  was  a  production  of  income  in  so  far  as  net 
profits  were  concerned,  and  that  the  amount  by  which  the  body  of 
ore  was  reduced  should  not  be  added  as  a  part  of  the  expenses  of  con- 
ducting tlie  business.  This  illustrates  the  difference  between  the 
production  of  income  and  the  mere  changing  of  form  in  which 
capital  may  be  owned  by  the  individual  stockholder. 

In  Eisner  v.  Macomber,  supra,  at  p.  208,  the  court  says : 

"  The  stockholder  has  the  right  to  have  the  assets  employed  in  the 
enterprise,  with  the  incidental  rights  mentioned ;  but,  as  stockliolder, 
he  has  no  right  to  withdraw,  only  the  right  to  persist,  subject  to  the 
enterprise,  and  looking  only  to  dividends  for  his  return." 

It  is  apparent,  therefore,  in  the  present  case  that  the  plaintiffs 
received  an  actual  payment  (in  the  form  of  securities  available  for 
disposition  in  the  market,  and  entirely  served  or  distinguished  from 
their  control  of  the  property  as  stockholders)  of  profits  which  the 
company  wished  to  distribute  as  earnings  to  its  stockholders.  It  did 
this  by  distribution  of  obligations  which,  like  a  promissory  note, 
called  for  the  payment  of  cash,  and  did  not  invest  the  holder  with 
merely  a  difl'erent  form  of  holding  of  stock. 

There  is  no  question  here  between  the  persons  receiving  this  divi- 
dend and  creditors,  as  to  priority  of  payment.  Evidently  so  far  as 
these  debenture  bonds  are  concerned,  the  corporation  was  solvent, 
and  to  whatever  extent  they  might  be  of  value,  this  value  was  sepa- 
rated from  any  stockholders'  control  of  the  corporation.  As  stated 
in  Eisner  v.  Macomber,  supra,  at  p.  212 : 

"  It  is  said  that  a  stockholder  may  sell  the  new  shares  acquired  in 
the  stock  dividend;  and  so  he  may,  if  he  can  find  a  buyer.  It  is 
equally  true  that  if  he  does  sell,  and  in  doing  so  realizes  a  profit, 
such  profit,  like  any  other,  is  income,  and  so  far  as  it  may  have  arisen 
since  the  Sixteenth  Amendment  is  taxable  by  Congress  without 
apportionment." 

The  debenture  bonds  in  the  suit  at  bar  fall  into  the  class  of  stock 
sold  rather  than  stock  held  in  a  continued  status  of  shareholder. 

The  complaints  should  be  dismissed. 


UNITED  STATES  v.  GUINZBERG. 
Circuit  Court  of  Appeals.     1921. 

[Reported  278  Fed.  363.] 

Manton,  Circuit  Judge.  On  the  17th  of  Febraary,  1913,  the 
I.  B.  Kleinert  Eubber  Co.  declared  a  dividend  of  18  per  cent  to  com- 
mon stockholders  of  record  on  January  30,  1913.     This  dividend 


BECT.  IV.]        U^^TED  STATES  V.    GUINZBEEG.  4l7 

was  payable  July  1,  1913.  The  defendant  in  error  was  a  stock- 
holder on  the  30th  of  Januar}',  1913.  The  dividend  was  declared 
out  of  the  profits  of  the  company  earned  during  the  year  1912.  It 
was  the  only  dividend  paid  during  the  year  1913.  The  declaration 
of  this  dividend  was  in  accordance  with  the  established  practice  of 
20  years'  standing  that  one  dividend  in  each  year  was  declared  in 
February  out  of  the  earnings  of  the  company,  and  made  payable 
the  following  July  1.  The  reason  given  for  the  postponement  of  the 
payment  of  the  dividend  until  July  1  in  each  year  was  to  permit  the 
corporation  to  have  use  of  the  earnings  in  its  business  as  a  bank 
balance.  This  purpose  was  said  to  be  to  avoid  being  forced  to  bor- 
row money.  The  defendant  in  error,  in  his  return  for  1913,  did  not 
include  the  dividend  so  received  by  him,  amounting  to  $70,380,  and 
it  is  because  of  his  failure  to  pay  an  income  tax  on  such  sum  that 
this  action  was  brought. 

AVe  think  that  the  dividend  declared  prior  to  March  1,  1913,  the 
effective  date  of  the  income  tax  law  here  considered,  was  not  income 
when  paid  because  it  was  part  of  the  capital  of  the  defendant  in  error 
on  March  1,  1913.  By  the  declaration  of  a  dividend,  the  earnings 
of  the  company  to  the  extent  declared  were  separated  from  the 
property  of  the  corporation  and  were  appropriated  by  that  action 
to  the  then  stockholders,  who  became  creditors  of  the  corporation 
for  the  amount  of  the  dividend.  The  relation  then  created  was  that 
of  debtor  and  creditor.  X.  Y.  Trust  Co.  et  al.,  v.  Edwards,  Su- 
preme Court,  decided  November  14,  1921 ;  Wheeler  v.  Northwestern 
Sleigh  Co.,  39  Fed.  437;  People  ex  rcl.  U.  S.  Trust  Co.  v.  Barker, 
^Q  Hun.  131;  Billingham  v.  Gleason  Mfg.  Co.,  101  App.  Div.  476; 
affd.  185  N.  Y.  571.  It  is  the  separation  of  the  earnings  from  the 
balance  of  the  corporate  property,  together  with  the  promise  to  pay 
arising  from  the  declaration  of  the  dividend,  that  works  this  change. 
The  holder  of  stock,  with  respect  to  the  dividend,  is  on  a  par  with 
the  other  creditors  of  the  corporation.  Staats  v.  Biograph  Co.,  236 
Fed.  454.  The  fact  that  the  dividend  is  payable  at  a  future  date 
does  not  alter  the  rights  thus  created.  The  obligation  of  the  corpo- 
ration as  debtor  commences  with  the  declaration  of  the  dividend, 
although  the  payment  is  postponed  for  the  convenience  of  the  com- 
pany. The  rights  of  the  stockholders  are  immediately  vested  the 
moment  the  dividend  is  declared.  N.  Y.  Trust  Co.,  etc.  v.  Ed- 
wards, etc.,  supra.  The  action  of  the  board  of  directors  is  the  ap- 
propriation of  a  portion  of  the  earnings  to  the  defendant  in  error 
as  the  holder  of  a  certificate  of  stock.  The  same  rule  prevails  in  the 
State  courts  of  Xew  York,  under  wliich  laws  the  corporation  here 
in  question  was  organized.  Hopper  v.  Sage,  112  N.  Y.  530.  The 
fact  that  thev  are  payable  at  a  future  time  is  immaterial.  Matter 
of  Kernochen,  104  X.  Y.  618. 

The  income  tax  Act  as  of  March  1,  1913,  provides: 

"A.  Subdivision  1.  That  there  shall  be  levied,  assessed,  collected 
and  paid  annually  upon  the  entire  net  income  arising  or  accruing 
from  all  sources  in  the  preceding  calendar  year  to  every  citizen  of 


418  UNITED  STATES  V.  GUINZBERG.  [CKAP.  VII. 

the  United  States,  whether  residing  at  home  or  abroad,  and  to  every 
person  residing  in  tlie  United  States  though  not  a  citizen  thereof, 
a  tax  of  1  per  centum  per  annum  upon  such  income,  except  as  here- 
inafter provided ;  and  a  like  tax  shall  be  assessed,  levied,  collected, 
and  paid  annually  upon  the  entire  net  income  from  all  property 
owned  and  of  every  business,  trade,  or  profession  carried  on  in  the 
United  States  by  persons  residing  elsewhere.  .  .  ." 

"  D.  The  said  tax  shall  be  computed  upon  the  remainder  of  said 
net  income  of  each  person  subject  thereto,  accruing  during  each  pre- 
ceding calendar  year  ending  December  31 :  Provided,  however,  That 
for  the  year  ending  December  31,  1913,  said  tax  shall  be  computed 
on  the  net  income  accruing  from  March  1  to  December  31,  1913, 
both  dates  inclusive.  .  .  ." 

We  think  that  under  this  Act  the  income  which  accrued  after 
Llarch  1,  1913,  only  is  taxable.  Anything  which  accrued  prior  to 
March  1,  1913,  was  part  of  the  taxpayer's  principal  at  the  time  when 
this  Act  became  effective.  Property  held  prior  to  March  1,  1913, 
must  be  considered  as  capital,  and  the  dividends  in  question  must 
be  treated  as  such.  The  Act  provides  that  "  the  entire  net  income 
arising  or  accruing  from  all  sources  in  the  preceding  calendar  year 
to  every  citizen  of  the  United  States  .  .  ."  shall  be  taxed.  Accumu- 
lations that  accrued  to  a  corporation  prior  to  January  1,  1913,  were 
held  to  be  capital  and  not  income  for  the  purpose  of  the  Act  in 
Southern  Pacific  Co.  v.  Lowe,  247  U.  S.  330.  The  term  "  income  " 
has  been  held  to  have  no  broader  meaning  in  the  1913  Act  than  in 
the  1910  Act.  Stratton's  Independence  v.  Howbert,  231  U.  S.  417. 
The  Supreme  Court  based  its  conclusion  in  the  Southern  Pacific 
case  (supra)  upon  the  view  that  it  was  the  purpose  and  intent  of 
Congress,  while  taxing  the  entire  net  income  "arising  or  accruing" 
from  all  sources  during  each  year,  commencing  the  1st  day  of  March, 
1913,  to  refrain  from  taxing  that  which,  in  mere  form  only,  bore  the 
appearance  of  income  accruing  after  that  date,  while  in  truth  and 
substance  it  accrued  before.  Under  the  1909  Act  the  expression 
"  income  received  during  such  year  "  was  held  to  look  to  the  time 
of  realization  rather  than  the  period  of  accrument  "  except  as  a 
taking  effect  of  the  Act  on  a  specific  date  (January  1,  1909)  excludes 
income  that  accrued  before  that  date."  Hayes  v.  Gauley  Mt.  Coal 
Co.,  247  U.  S.  193.  In  the  Hayes  case,  it  was  held  that  income 
received  within  the  year  for  which  the  assessment  was  levied,  whether 
it  accrued  within  that  A'ear  or  some  preceding  year,  when  the  Act 
was  in  effect,  could  be  taxed,  but  it  excluded  all  income  that  accrued 
prior  to  January  1,  1909,  although  afterwards  received  while  the 
Act  was  in  effect.  Value  received  by  shareholders  on  the  surrender 
of  their  certificates  of  stock  where  the  company  sold  all  its  property 
and  made  final  distribution  of  the  proceeds  to  the  shareholders,  and 
where  the  amount  received  by  each  was  twice  the  par  value  of  the 
stock,  but  represented  no  increase  since  the  effective  date  of  the  Act, 
it  was  held  that  it  did  not  "arise  or  accrue"  after  the  Act  became 
effective.     In  Maryland  Casualty  Co.  v.  United  States,  251  U.  S. 


SECT.  IV.],  UNITED  STATES  V.  TIIELLIS.  419 

342,  cited  by  the  Government,  the  income  tax  Act  of  1913  was  con- 
sidered in  so  far  as  it  concerned  the  dealinj^  with  corporations  as 
distinguished  from  dealings  with  individuals  and  which  imposed  a 
tax,  under  the  language  of  one  paragraph,  upon  income  "  arising  or 
accruing"  during  the  year  and  under  another  paragraph  of  the  Act 
upon  income  received  within  the  year.  It  was  held  that  it  was  not 
suilicient  for  income  to  accrue  within  the  year  in  order  to  render  the 
corporation  taxable,  but  the  income  must  have  been  received  by  the 
corporation.  But  this  was  due  to  ambiguous  paragraphs  of  the  Act 
which  taxed  the  corporation.  It  was  a  construction  favorable  to  the 
taxpayer  under  such  paragraphs.  Nowhere  in  the  opinion  is  there  a 
suggestion  that  the  court  changed  the  rule  announced  in  Southern 
Pacific  Co.  v.  Lowe,  supra,  and  Hayes  v.  Coal  Co.,  supra,  wherein  it 
was  held  that  income  which  had  accrued  prior  to  March  1,  1913,  if 
received  thereafter,  would  not  be  taxable. 

The  case  at  bar  is  dilferent  from  the  cases  where  commissions  are 
to  be  received  at  a  future  date  upon  a  contingency  and  where  there 
is  no  fixed  certainty  of  such  receipt.  There  it  can  not  be  said  that 
the  income  has  accrued.  Edwards  v.  Keith,  231  Fed.  110;  Woods 
V.  Lewellyn,  252  Fed.  106.  Dividends  declared  and  paid  in  the 
ordinary  course  by  a  corporation  to  its  stockholders  after  March  1, 
1913,  whether  from  current  earnings  or  from  surplus  accumulated 
prior  to  that  date,  have  been  held  to  be  taxable  as  income  to  the 
stockholder.  Lynch  v.  Plornby,  247  U.  S.  339.  "We  deem  the 
legislative  intent  manifest  only  if  and  when,  and  to  the  extent  that, 
his  interest  in  them  comes  to  fruition  as  income  —  that  is,  in  divi- 
dends declared."    Eisner  v.  Macomber,  253  U.  S.  204. 

We  conclude  that  upon  the  declaration  of  a  dividend  the  debt  was 
immediately  created  in  favor  of  the  defendant  in  error,  payalde  at  a 
future  date.  By  that  action  a  vested  right  was  created  in  favor  of 
the  stockholder,  who  could  sell  his  right  by  assigning  or  pledging  or 
otherwise  disposing  of  it,  and  this  was  not  income  arising  and  accru- 
ing within  the  meaning  of  the  statute  such  as  might  be  taxed  under 
the  income  tax  act  of  March  1,  1913,  here  in  question.  The  same 
views  are  expressed  in  the  rulings  of  the  Treasury  Department 
(Treasury  Decision  2048,  November  12,  1914). 

We  find  no  error  below,  and  tlie  direction  of  a  judgment  for  the 
defendant  is  affirmed. 


UNITED  STATES  v.  PHELLIS. 
Supreme  Court  of  the  United  States.     1921. 

[Reported  257  U.  8.] 

Pitney,  J.  The  court  below  sustained  the  claim  of  C.  W.  Phellis 
for  a  refund  of  certain  moneys  paid  by  him  under  protest  in  dis- 
charge of  an  additional  tax  assessed  against  him  for  the  year  1915, 
based  upon  alleged  income  equivalent  to  the  market  value  of  500 


420  r^'ITED  STATES  V.    PUELLIS.  [cHAP.   VII. 

shares  of  stock  of  a  Delaware  corporation  called  the  E.  I.  du  Pont 
de  Xemours  &  Co.,  received  by  him  as  a  dividend  upon  his  250  shares 
of  stock  of  the  E.  I.  du  Pont  de  Xemours  Powder  Co.,  a  New  Jersey 
corporation.    The  United  States  appeals. 

From  the  findings  of  the  Court  of  Claims,  read  in  connection  with 
claimant's  petition,  the  following  essential  facts  appear :  In  and  prior 
to  September,  1915,  the  New  Jersey  company  had  been  engaged  for 
many  years  in  the  business  of  manufacturing  and  selling  explosives. 
Its  funded  debt  and  its  capitiil  stock  at  par  values  were  as  follows; 

5%  mortgage  bonds $1,230,000 

41/9%  30-year  bonds 14,166,000 

Preferred  stock  ($100  shares) 16,068,600 

Common  stock  ($100  shares)    29,427,100 

Total $60,891,700 

It  had  an  excess  of  assets  over  liabilities  showing  a  large  surplus 
of  accumulated  profits;  the  precise  amount  is  not  important,  except 
that  it  should  be  stated  that  it  was  sufiicient  to  cover  the  dividend 
distribution  presently  to  be  mentioned.  In  that  month  a  reorganiza- 
tion and  financial  adjustment  of  the  business  was  resolved  upon  and 
carried  into  efl'ect  with  the  assent  of  a  sufficient  proportion  of  the 
stockholders,  in  which  a  new  corporation  was  formed  under  the  laws 
of  Delaware  with  an  authorized  capital  stock  of  $240,000,000,  to 
consist  in  part  of  debenture  stock  bearing  6  per  cent  cumulative 
dividends,  in  part  of  common  stock ;  and  to  this  new  corporation  all 
the  assets  and  good  will  of  the  New  Jersey  company  were  transferred 
as  an  entirety  and  as  a  going  concern,  as  of  October  1,  1915,  at  a 
valuation  of  $120,000,000,  the  new  company  assuming  all  the  obli- 
gations of  the  old  except  its  capital  stock  and  funded  debt.  In  pay- 
ment of  the  consideration  the  old  company  retained  $1,484,100  in 
cash  to  be  used  in  redemption  of  its  outstanding  5  per  cent  mort- 
gage bonds,  and  received  $59,661,700  par  value  in  debenture  stock 
of  the  new  company  (of  which  $30,234,600  was  to  be  used  in  taking 
up,  share  for  share  and  dollar  for  dollar,  the  preferred  stock  of  the 
old  company  and  redeeming  its  30-year  bonds),  and  $58,854,200 
par  value  of  the  common  stock  of  the  new  company  which  was  to  be 
and  was  immediately  distributed  among  the  common  stockholders  of 
the  old  company  as  a  dividend,  paying  them  two  shares  of  the  new 
stock  for  each  share  they  held  in  the  old  company.  This  plan  was 
carried  out  by  appropriate  corporate  action ;  the  new  company  took 
over  all  the  assets  of  the  old  company,  and  that  company  besides 
paying  off  its  5  per  cent  bonds  acquired  debenture  stock  of  the  new 
company  sufficient  to  liquidate  its  4I/0  per  cent  30-year  bonds  and 
retire  its  preferred  stock,  additional  debenture  stock  equal  in  amount 
at  par  to  its  own  outstanding  common  stock,  and  also  two  shares  of 
common  stock  of  the  Delaware  corporation  for  each  share  of  the  out- 
standing common  stock  of  the  New  Jersey  corporation.  Each  holder 
of  the  New  Jersey  company's  common  stock  (including  claimant) 
retained  his  old  stock  and  besides  received  a  dividend  of  two  shares 


SECT.  IV.]  UNITED  STATES  V.  PHELLIS.  421 

for  one  in  common  stock  of  the  Delaware  company,  and  the  New 
Jersey  corporation  retained  in  its  treasury  6  per  cent  debenture  stock 
of  the  Delaware  corporation  e(|uivalen't  to  the  par  value  of  its  own 
outstanding  common  stock.  The  i)ersonnel  of  the  stockholders  and 
officers  of  the  two  corporations  was  on  October  1,  1915,  identical,  the 
new  company  having  elected  the  same  officers  as  the  old ;  and  the 
holders  of  common  stock  in  both  corporations  had  the  same  propor- 
tionate stockholding  in  each.  After  the  reorganization  and  the  dis- 
tribution of  the  stock  of  the  Delaware  corjjoration,  the  Xew  Jersey 
corporation  continued  as  a  going  concern,  and  still  exists,  but  except 
for  the  redemption  of  its  outstiinding  bonds,  the  exchange  of  deben- 
ture stock  for  its  preferred  stock,  and  the  holding  of  debenture  stock 
to  an  amount  equivalent  to  its  own  outstanding  common  and  the 
collection  and  disposition  of  dividends  thereon,  it  has  done  no  busi- 
ness. It  is  not,  however,  in  process  of  liquidation.  It  has  received 
as  income  upon  the  Delaware  company's  debenture  stock  held  by  it 
dividends  to  the  amount  of  6  per  cent  per  annum,  which  it  has  paid 
out  to  its  own  stockholders,  including  the  claimant.  The  fair  mar- 
ket value  of  the  stock  of  the  Xew  Jersey  corporation  on  September 
30,  1915,  prior  to  the  reorganization,  Avas  $T95  per  share,  and  its 
fair  market  value,  after  the  execution  of  the  contracts  between  the 
two  corporations,  was  on  October  1,  1915,  $100  per  share.  The  fair 
market  value  of  the  stock  of  the  Delaware  corporation  distributed 
as  aforesaid  was  on  October  1,  1915,  $347.50  per  share.  The  Com- 
missioner of  Internal  Revenue  held  that  the  500  shares  of  Delaware 
company  stock  acquired  by  claimant  in  the  distribution  was  income 
of  the  value  of  $347.50  per  share  and  assessed  the  additional  tax 
accordingly. 

The  Court  of  Claims,  observ^ing  that  from  the  facts  as  found  claim- 
ant's 250  shares  of  stock  in  the  Xew  Jersey  corporation  were  worth 
on  the  market,  prior  to  the  transfer  and  dividend,  precisely  the  same 
that  the  same  shares  plus  the  Delaware  company's  shares  received 
by  him  were  worth  thereafter,  and  that  he  did  not  gain  any  increase 
in  the  value  of  his  aggregate  holdings  by  the  operation,  held  that 
the  whole  transaction  was  to  be  regarded  as  merely  a  financial  reor- 
ganization of  the  business  of  the  company,  producing  to  him  no 
profit  and  hence  no  income,  and  that  the  distribution  was  in  effect 
a  stock  dividend  nontaxable  as  income  under  the  authority  of  Eisner 
V.  Macomber,  252  U.  S.  189,  and  not  within  the  rule  of  Peabody  v. 
Eisner,  247  U.  S.  347. 

We  recognize  the  importance  of  regarding  matters  of  substance 
and  disregarding  forms  in  applying  the  provisions  of  the  sixteenth 
amendment  and  income  tax  laws  enacted  thereunder.  In  a  number 
of  cases  besides  those  just  cited  we  have  under  varving  conditions 
followed  the  rule.  Lvnch  v.  Tun-ish,  247  F.  S.  '221 ;  Southern 
Pacific  Co.  V.  Lowe,  247  U.  S.  330;  Gulf  Oil  Corporation  v.  Lewel- 
lyn,  248  U.  S.  71. 

The  Act  under  which  the  tax  now  in  question  was  imposed  (Act  of 
Oct.  3,  1913,  ch.  16,  38  Stat.  114,  160-167)  declares  that  income 
shall  include,  among  other  things,  gains  derived  "from  interest,  rent. 


422  UKITED  STATES  V.   TllELLlS.  [cilAI'.   VII. 

dividends,  securities,  or  the  transaction  of  any  lawful  business  carried 
on  for  gain  or  profit,  or  gains  or  profits  and  income  derived  from  any 
source  whatever."  Disregarding  the  slight  looseness  of  construction, 
we  interpret  ''gains,  profits,  and  income  derived  from  .  .  .  divi- 
dends," etc.,  as  meaning  not  that  everything  in  the  form  of  a  divi- 
dend must  be  treated  as  income,  but  that  income  derived  in  the  way 
of  dividends  shall  be  taxed.  Hence  the  inquiry  must  be  whether  the 
shares  of  stock  in  the  new  company  received  by  chiimant  as  a  dividend 
by  reason  of  his  ownership  of  stock  in  the  old  company  constituted 
(to  apply  the  tests  laid  down  in  Eisner  v.  Macomber,  252  U.  S. 
189,  207)  a  gain  derived  from  capital,  not  a  gain  accruing  to  capi- 
tal, nor  a  growth  or  increment  of  value  in  the  investment,  but  a  gain, 
a  profit,  something  of  exchangeable  value  proceeding  from  the  prop- 
erty, severed  from  the  capital  however  invested,  and  coming  in  —  that 
is,  received  or  drawn  by  the  claimant  for  his  separate  use,  benefit, 
and  disposal. 

Claimant's  capital  investment  was  represented  by  his  New  Jersey 
shares.  Whatever  increment  of  value  had  accrued  to  them  prior  to 
September  30,  1915,  by  reason  of  the  surplus  profits  that  theretofore 
had  been  accumulated  by  the  company,  was  still  a  part  of  claimant's 
capital,  from  which  as  yet  he  had  derived  no  actual  and  therefore  no 
taxable  income  so  far  as  the  surplus  remained  undistributed.  As  yet 
he  had  no  right  to  withdraw  it  or  any  part  of  it,  could  not  have  such 
right  until  action  by  the  company  or  its  proper  representatives,  and 
his  interest  still  was  but  the  general  property  interest  of  a  stock- 
holder in  the  entire  assets,  business,  and  affairs  of  the  company  — 
a  capital  interest,  as  we  declared  in  Eisner  v.  Macomber,  252  U.  S. 
189,  208. 

Upon  the  face  of  things,  however,  the  transfer  of  the  old  company  s 
assets  to  the  new  company  in  exchange  for  the  securities  issued  by 
the  latter,  and  the  distribution  of  those  securities  by  the  old  company 
among  its  stockholders,  changed  the  former  situation  materially. 
The  common  stock  of  the  new  company,  after  its  transfer  to  the  old 
company  and  prior  to  its  distribution,  constituted  assets  of  the  old 
company  which  it  now  held  to  represent  its  surplus  of  accumulated 
profits  —  still,  however,  a  common  fund  in  which  the  individual 
stockholders  of  the  old  company  had  no  separate  interest.  But  when 
this  common  stock  was  distribiited  among  the  common  stockholders 
of  the  old  company  as  a  dividend,  then  at  once  —  unless  the  two  com- 
panies must  be  regarded  as  substantially  identical  —  the  individual 
stockholders  of  the  old  company,  including  claimant,  received  assets 
of  exchangeable  and  actual  vahie  severed  from  tbeir  capital  interest 
in  the  old'company,  proceeding  from  it  as  the  result  of  a  division  of 
former  corporate  profits,  and  drawn  by  them  severally  for  their  in- 
divid\]al  and  separate  use  and  benefit.  Such  a  gain  resulting  from 
their  ownership  of  stock  in  tbe  old  company  and  proceeding  from  it 
constituted  individual  income  in  tbe  proper  sense. 

That  a  comparison  of  the  market  value  of  claimant's  shares  in  the 
New  .Jersey  corporation  immediately  before,  with  tbe  aggregate 
market  value  of  those  shares  plus  the  dividend  shares  immediately 


SECT.  IV.]  UNITED  STATES  V.  TIIELLIS.  423 

after,  the  dividend  showed  no  change  in  the  aggregate  —  a  fact  relied 
upon  by  the  Court  of  Claims  as  denioiistratiug  that  claimant  neither 
gained  nor  lost  pecuniarily  in  the  liansactiun  —  seems  to  us  a  cir- 
cumstance of  no  particular  importance  in  the  present  incjuiry.  As- 
suming the  market  values  were  a  precise  reflex  of  intrinsic  values, 
they  would  show  merely  that  claimant  acquired  no  increase  in  aggre- 
gate wealth  through  the  mere  effect  of  the  reorganization  and  conse- 
quent dividend,  not  that  the  dividend  did  not  constitute  income. 
There  would  remain  the  presumption  that  the  value  of  the  New  Jer- 
sey shares  immediiiti'ly  prior  to  the  transaction  rellected  the  original 
capital  investment  plus  the  accretions  which  had  resulted  through 
the  company's  business  activities  and  constituted  its  surplus;  a  sur- 
plus in  which,  until  dividend  luade,  the  individual  stockholder  had 
no  property  interest  except  as  it  increased  the  valuation  of  his  capital. 
It  is  the  appropriate  function  of  a  dividend  to  convert  a  part  of  a 
surplus  thus  accumulated  from  property  of  the  company  into  prop- 
erty of  the  individual  stockholders;  the  stockholder's  share  being 
thereby  released  to  and  drawn  by  him  as  profits  or  income  derived 
from  the  company.  That  the  distribution  reduces  the  intrinsic 
capital  value  of  the  shares  by  an  equal  amount  is  a  normal  and  neces- 
sary effect  of  all  dividend  dislrihiifions — whether  large  or  small 
and  wliether  paid  in  money  or  in  other  divisible  assets  —  but  such 
reduction  constitutes  the  dividend  none  the  less  income  derived  by 
the  stockholder  if  it  represents  gains  previously  acquired  by  the  cor- 
poration. Hence,  a  comparison  of  aggregate  values  immediately  be- 
fore with  those  immediately  after  the  dividend  is  not  a  proper  test 
for  deterrain-ing  whether  individual  income,  taxable  against  the 
stockholder,  has  been  received  by  means  of  the  dividend. 

The  possibility  of  occasional  instances  of  apparent  hardship  in  the 
incidence  of  tlie  tax  may  be  conceded.  \\'here,  as  in  this  case,  the 
dividend  constitutes  a  distribution  of  profits  accumulated  during  an 
extended  period  and  bears  a  large  proportion  to  the  par  value  of  the 
stock,  if  an  investor  happened  to  buy  stock  shortly  before  the  divi- 
dend, paying  a  price  enhanced  by  an  estimate  of  the  capital  plus  the 
surplus  of  tlie  company,  and  after  distribution  of  the  surplus,  with 
corresponding  reduction  in  the  intrinsic  and  market  value  of  the 
shares,  he  were  called  upon  to  pay  a  tax  upon  the  dividend  received, 
it  might  look  in  his  case  like  a  tax  upon  his  capital.  But  it  is  only 
apparently  so.  In  buying  at  a  price  that  reflected  the  accumulated 
profits,  he  of  course  acquired  as  a  part  of  the  valuable  rights  pur- 
chased the  prospect  of  a  dividend  from  the  accumulations  —  bought 
"dividend  on,*'  as  the  phrase  goes  —  and  necessarily  took  subject  to 
the  burden  of  the  income  tax  proper  to  be  assesse(l  against  him  by 
reason  of  the  dividend  if  and  when  made.  He  simply  stepped  into 
the  shoes,  in  this  as  in  other  respects,  of  the  stockholder  wjiose  shares 
he  acquired,  and  presumably  tlie  prospect  of  a  dividend  influenced 
the  price  paid,  and  was  discounted  by  the  prospect  of  an  income  tax 
to  be  paid  thereon.  In  short,  the  question  whether  a  dividend  made 
out  of  company  profits  constitutes  income  of  the  stockholder  is  not 
affected  by  antecedent  transfers  of  the  stock  from  hand  to  hand. 


424  UXITED  STATES  V.   THELLIS.  [ciIAP.   VII. 

There  is  more  force  in  the  suggestion  that,  looking  through  and 
through  the  entire  transaction  out  of  wliich  the  distribution  came, 
it  "was  but  a  financial  reorganization  of  tlie  business  as  it  stood  be- 
fore, "without  diminution  of  the  aggregate  assets  or  change  in  the 
general  corporate  objects  and  purposes,  witliout  change  of  personnel 
either  in  officers  or  stocklioUlers,  or  change  in  the  proportionate  in- 
terest of  any  individual  stockliolder.  The  argument,  in  effect,  is  that 
there  "was  no  loss  of  essential  identity  on  the  part  of  the  company, 
only  a  change  of  the  legal  habiliments  in  "which  the  aggregate  cor- 
porate interests  "were  clothed,  no  substantial  realization  by  individual 
stockholders  out  of  the  previous  accumulation  of  corporate  profits, 
merely  a  distribution  of  additional  certificates  indicating  an  increase 
in  the  value  of  their  capital  holdings.  This  brings  into  view  the 
general  effect  of  the  combined  action  of  the  entire  body  of  stock- 
holders as  a  mass. 

In  such  matters,  "what  was  done,  rather  than  the  design  and  pur- 
pose of  the  participants,  should  be  the  test.  However,  in  this  Case 
there  is  no  difference.  The  proposed  plan  was  set  out  in  a  written  com- 
nmnication  from  the  president  of  the  N"ew  Jersey  corporation  to  the 
stockholders,  a  written  assent  signed  by  about  90  per  cent  of  the 
stockholders,  a  written  agreement  made  between  the  old  company  and 
the  new,  and  a  bill  of  sale  made  by  the  former  to  the  latter,  all  of 
which  are  in  the  findings.  The  plan  as  thus  proposed  and  adopted, 
and  as  carried  out,  involved  the  formation  of  a  new  corporation  to 
take  over  the  business  and  the  business  assets  of  the  old;  it  was  to 
be  and  was  formed  under  the  laws  of  a  different  State,  which  neces- 
sarily imports  a  different  measure  of  responsibility  to  the  public,  and 
presumably  different  rights  between  stockholders  and  company  and 
between  stockholders  inter  se,  than  before.  The  articles  of  association 
of  neither  company  is  made  to  appear,  but  in  favor  of  the  asserted 
identity  between  the  companies  we  will  assume  (contrary  to  the 
probabilities)  that  there  was  no  significant  difference  here.  But  the 
new  company  was  to  have  authorized  capital  stock  aggregating  $240,- 
000,000  —  nearly  four  times  the  aggregate  stock  issues  and  funded 
debt  of  the  old  company  —  of  which  less  than  one-half  ($118,515,900) 
was  to  be  issued  presently  to  the  old  company  or  its  stockholders, 
leaving  the  future  disposition  of  a  majority  of  the  authorized  new 
issues  still  to  be  determined.  There  was  no  present  change  of  officers 
or  stockholders,  but  manifestly  a  continuation  of  identity  in  this 
respect  depended  upon  continued  unanimous  consent  or  concurrent 
action  of  a  multitude  of  individual  stockholders  actuated  by  motives 
and  influences  necessarily  to  some  extent  divergent.  In  the  light  of 
all  this  we  can  not  regard  the  new  company  as  virtually  identical 
with  the  old,  but  must  treat  it  as  a  substantial  corporate  body  with 
its  own  separate  identity,  and  its  stockholders  as  having  property 
rights  and  interests  materially  different  from  those  incident  to  owner- 
ship of  stock  in  the  old  company. 

The  findings  show  that  it  was  intended  to  be  established  as  such, 
and  that  it  was  so  created  in  fact  and  in  law.  There  is  nothing  to 
■warrant  us  in  treating  this  separateness  as  imaginary,  unless  the 


1 


SECT.    IV.]  UNITED    STATES    r.    PIIELLIS.  425 

identity  of  the  body  of  stockholders  and  the  transfer  in  solido  of  the 
manuracturing  business  and  assets  from  the  old  company  to  the  new 
necessarily  have  that  elt'ect.  But  the  identity  of  stockholders  was  but 
a  temporary  condition,  subject  to  change  at  any  moment  at  the 
option  of  any  individual.  As  to  the  assets,  the  very  fact  of  their 
transfer  from  one  company  to  the  other  evidenced  the  actual  separate- 
ness  of  the  two  companies. 

But  further,  it  would  be  erroneous,  we  think,  to  test  the  question 
whether  an  individual  stockholder  derived  income  in  the  true  and 
substantial  sense  through  receiving  a  part  in  the  distribution  of  the 
new  shares,  by  regarding  alone  the  general  effect  of  the  reorganiza- 
tion upon  the  aggregate  body  of  stockiiolders.  The  liability  of  a 
stockholder  to  pay  an  individual  income  tax  must  be  tested  by  the 
effect  of  the  transaction  upon  the  individual.  It  was  a  part  of  the 
purpose  and  a  necessary  result  of  the  plan  of  reorganization,  as 
carried  out,  that  common  stock  of  the  new  company  to  the  extent 
of  $58,854,'^0U  should  l)e  turned  over  to  the  old  company,  treated  by 
it  as  assets  to  be  distributed  as  against  its  liability  to  stockholders 
for  accrued  surplus,  and  thereupon  distributed  to  them  "  as  a  divi- 
dend." The  assent  of  the  stockholders  was  based  upon  this  as  a  part 
of  the  plan. 

In  thus  creating  the  common  stock  of  the  new  company  and  trans- 
ferring it  to  the  old  company  for  distribution  pro  rata  among  its 
stockholders,  the  parties  were  acting  in  the  exercise  of  their  rights 
for  the  very  purpose  of  placing  the  common  stockholders  individually 
in  possession  of  new  and  substantial  property  rights  in  esse,  in 
realization  of  their  former  contingent  right  to  participate  eventually 
in  the  accumulated  surplus.  No  question  is  made  but  that  the  pro- 
ceedings taken  were  legally  adequate  to  accomplish  the  purpose. 
The  new  common  stock  became  treasury  assets  of  the  old  company, 
and  was  capable  of  distril)ution  as  the  manufacturing  assets  whose 
place  it  took  were  not.  Its  distribution  transferred  to  the  several 
stockholders  new  individual  property  rights  which  they  severally 
were  entitled  to  retain  and  enjoy,  or  to  sell  and  transfer,  with  pre- 
cisely the  same  substantial  benefit  to  each  as  if  the  old  company  had 
acquired  the  stock  by  purchase  from  strangers.  According  to  the 
findings  the  stock  thus  distributed  was  marketable.  There  was 
neither  express  nor  implied  condition,  arising  out  of  the  plan  of 
reorganization  or  otherwise,  to  prevent  any  stockholder  from  selling 
it;  and  he  could  sell  his  entire  portion  or  any  of  it  without  parting 
■with  his  capital  interest  in  the  parent  company,  or  affecting  his  pro- 
portionate relation  to  the  interests  of  other  stockholders.  Whether 
he  sold  the  new  stock  for  money  or  retained  it  in  preference,  in 
either  case  when  he  received  it  he  received  as  his  separate  property 
a  part  of  the  accumulated  profits  of  the  old  company  in  which  pre- 
viously he  had  only  a  potential  and  contingent  interest. 

It  thus  appears  that  in  substance  and  fact,  as  well  as  in  appearance, 
the  dividend  received  by  claimant  was  a  gain,  a  profit,  derived  from  his 
capital  interest  in  the  old  company,  not  in  liquidation  of  the  capital 
but  in  distribution  of  accumulated  profits  of  the  company;  sometliing 


426  KOCKEFELLEE   V.   UNITED   STATES.  [ciIAr.    VII. 

of  exchangeable  value  produced  by  and  proceeding  from  his  invest- 
ment therein,  severed  from  it  and  dra\\'n  by  him  for  his  separate  use. 
Hence  it  constituted  individual  income  within  the  meaning  of  the 
income  tax  law  as  clearly  as  was  the  case  in  Peabody  v.  Eisner,  247 
U.  S.  347. 

Judgment  of  the  Court  of  Claims  reversed,  and  the  cause  re- 
manded with  directions  to  dismiss  the  suit. 

McReynolds,  J.,  dissenting.  In  the  course  of  its  opinion,  citing 
Eisner  v.  Macomber,  252  U.  S.  189,  213,  the  Court  of  Claims  de- 
clared : 

"  We  think  the  whole  transaction  is  to  be  regarded  as  merely  a 
financial  reorganization  of  the  business  of  the  company  and  that 
this  view  is  justified  by  the  power  and  duty  of  the  court  to  look 
through  the  form  of  the  transaction  to  its  substance."  And  further, 
"  It  seems  incredible  that  Congress  intended  to  tax  as  income  a 
business  transaction  which  admittedly  produced  no  gain,  no  profit, 
and  hence  no  income.  If  any  income  had  accrued  to  the  plaintiff  by 
reason  of  the  sale  and  exchange  made  it  would  doubtless  be  taxable." 

There  were  perfectly  good  reasons  for  the  reorganization,  and  the 
good  faith  of  the  parties  is  not  questioned.  I  assume  that  the  statute 
was  not  intended  to  put  an  embargo  upon  legitimate  reorganizations 
when  deemed  essential  for  carrying  on  important  enterprises.  Eisner 
V.  Macomber  was  rightly  decided,  and  the  principle  which  I  think 
it  announced  seems  in  conflict  with  the  decision  just  announced. 

Mr.  Justice  Vax  Devantek  concurs  in  this  dissent. 


EOCKEFELLEE  v.  UNITED  STATES. 
Supreme  Court  of  the  United  States.     1921. 

[Reported  257  U.  8.] 

Pitney,  J.  These  two  cases  were  argued  together,  turn  upon 
like  facts,  and  may  be  disposed  of  in  a  single  opinion.  They  in- 
volve the  legality  of  certain  income  taxes  assessed  against  the  plain- 
tiff in  error  in  the  one  case,  and  against  the  testator  of  plaintiffs  in 
error  in  the  other,  under  the  income  tax  provisions  of  the  act  of 
October  3,  1913  (ch.  16,  38  Stat.  114,  166-167),  by  reason  of  cer- 
tain distributions  of  corporate  stocks  received  by  the  respective  tax- 
payers under  the  following  circumstances:  In  and  prior  to  the  year 
1914,  the  Prairie  Oil  &  Gas  Co.,  a  corporation  of  the  State  of 
Kansas,  was  engaged  in  producing,  purchasing,  and  selling  crude 
petroleum,  and  transporting  it  through  pipe  lines  owmed  by  the  com- 
pany in  the  States  of  Kansas  and  Oklahoma,  and  elsewhere.  At  the 
same  time  the  Ohio  Oil  Co.,  a  corporation  of  the  State  of  Ohio,  was 
engaged  in  producing  and  manufacturing  petroleum  and  mineral 
oil  and  transporting  the  same  through  pipe  lines  owned  by  it  in  the 
States  of  Ohio,  Indiana,  Illinois  and  Pennsylvania.  In  the  month 
of  June,  1914,  it  was  judicially  determined  by  this  court  (The  Pipe 


SECT.   IV.]  EOCKEFELLEE    V.   UNITED   STATES.  427 

Line  Cases,  234  U.  S.  548)  that  with  respect  to  the  transportation 
business  these  companies  were  common  carriers  in  interstate  com- 
merce, subject  to  the  act  to  regulate  commerce  as  amended  by  act  of 
June  29,  I'JUG  (cl).  ;i5<Jl,  ;{4  Stat.  584),  and  as  such  subject  to  the 
supervision  ol"  the  Interstate  Commerce  Commission.  By  act  of 
September  2G,  rJ14  (ch.  311,  38  Stat.  717),  tlie  remainder  of  tlieir 
business  became  subject  to  the  supervision  of  the  Federal  Trade 
Commission.  In  order  to  avoid  a  probable  conflict  of  Federal  au- 
thority in  case  the  combined  business  of  production  and  transporta- 
tion should  continue  to  be  carried  on  as  theretofore,  it  was  in  each 
case,  upon  advice  of  counsel,  determined  that  the  pipe-line  property 
should  be  owned  and  operated  by  a  separate  corporation.  In  the  case 
of  the  Ohio  company  an  added  reason  for  segregation  lay  in  the  fact 
that  by  a  section  of  the  Ohio  General  Code  its  entire  gross  receipts, 
including  those  derived  from  business  other  than  transportation, 
were  subject  to  an  annual  assessment  of  4  per  cent  chargeable  against 
the  gross  receipts  of  companies  engaged  in  the  transportation  busi- 
ness. For  these  reasons,  the  stockholders  of  the  Prairie  Oil  &  Gas 
Co.  caused  a  corporation  to  be  organized,  under  the  laws  of  the  State 
of  Kansas,  by  the  name  of  the  Prairie  Pipe  Line  Co.,  to  which  all 
the  pipe-line  property  of  the  Prairie  Oil  &  Gas  Co.  was  transferred 
in  consideration  of  the  issue  and  delivery  of  the  entire  capital  stock 
of  the  new  company,  to  be  distributed  pro  rata  to  the  stockholders 
of  the  Prairie  Oil  &  Gas  Co.  And  similarly,  the  stockholders  of  the 
Ohio  Oil  Co.  caused  a  corporation  to  be  formed,  under  the  laws  of 
that  State,  by  the  name  of  the  Illinois  Pipe  Line  Co.,  to  which  all 
the  pipe-line  property  of  the  Ohio  Oil  Co.  was  transferred  in  con- 
sideration of  the  issue  to  it  of  the  entire  capital  stock  of  the  new 
company,  whicli  was  to  be  distributed  at  once  by  the  old  company 
to  its  stockholders  pro  rata.  These  arrangements  were  carried  out 
in  like  manner  in  both  cases,  except  that  in  the  case  of  the  Kansas 
companies  the  stock  of  the  pipe-line  company  was  issued  directly 
to  the  stockholders  of  the  oil  company,  whereas  in  the  case  of  the 
Ohio  companies  the  pipe-line  company  issued  its  stock  to  the  oil 
company,  but  in  the  same  resolution  by  which  the  contract  was  made, 
an  immediate  distribution  of  the  new  stock  among  the  oil  company's 
stockholders  was  provided  for,  and  in  fact  it  was  carried  out.  The 
aggregate  valuation  of  the  Prairie  pipe  lines  was  $27,000,000,  that 
of  the  Ohio  pipe  lines  $20,000,000,  and  the  total  capitalization  of 
the  respective  pipe-line  companies  equaled  these  amounts. 

In  each  case,  the  oil  company  had  a  surplus  in  excess  of  the  stated 
value  of  its  pipe  lines  and  of  the  par  value  of  the  total  stock  of  the 
corresponding  pipe-line  company;  so  that  tile  transfer  of  the  pipe 
lines  and  the  distribution  of  the  stock  received  for  them  left  the 
capital  of  the  respective  oil  companies  unimpaired  and  required  no 
reduction  in  their  outstinding  issues. 

Messrs.  Rockefeller  and  Harkness,  respectively,  were  holders  of 
large  amounts  of  the  stock  of  both  the  Prairie  and  the  Ohio  oil  com- 
panies and  in  the  distributions  each  received  an  amount  of  stock 
in  each  of  the  pipe-line  companies  proportionate  to  his  holdings  in 


428  ROCKEFELLER   V.   "UNITED    STATES.  [ciIAP.   VII. 

the  oil  companies.  This  occurred  in  the  year  1915.  Neither  Mr. 
Eoeke feller  nor  Mr.  Harkness  nor  the  latter's  executors  sold  any  of 
the  stock  in  the  pipe-line  companies. 

Income  tax  assessments  for  the  year  1915  were  imposed  upon. 
Messrs,  Eockefeller  and  Harkness,  based  upon  the  value  of  the  stocks 
thus  received  as  dividends;  and  these  assessments  are  in  question  in 
the  present  suits,  both  of  which  were  brought  in  the  District  Court 
of  the  United  States  for  the  Southern  District  of  New  York:  one 
by  the  United  States  against  Mr.  Kockefeller,  the  other  by  the  ex- 
ecutors of  Mr.  Harkness  against  the  collector.  In  each  case  the  facts 
were  specially  pleaded  so  as  to  present  the  question  whether  the 
distribution  of  the  stocks  of  the  pipe-line  companies  among  the 
stockholders  of  the  oil  companies  constituted,  under  the  circum- 
stances, dividends  within  the  meaning  of  the  act  of  1913,  and  in- 
come within  the  meaning  of  the  sixteenth  amendment.  In  each  case 
a  final  judgment  was  rendered  sustaining  the  assessment,  and  the 
judgments  are  brought  here  by  direct  writs  of  error  under  section 
238,  Judicial  Code,  because  of  the  constitutional  question. 

Under  the  facts  as  recited  we  deem  it  to  be  too  plain  for  dispute 
that  in  both  cases  the  new  pipe-line  company  shares  were  in  sub- 
stance and  effect  distributed  by  the  oil  company  to  its  stockholders ; 
as  much  so  in  the  case  of  the  Kansas  company  where  the  new  stock 
went  directly  from  the  pipe-line  company  to  the  stockholders  of 
the  oil  company,  as  in  the  case  of  the  Ohio  company  where  the  new 
stock  went  from  the  pipe-line  company  to  the  oil  company  and  by  it 
was  transferred  to  its  stockholders.  Looking  to  the  substance  of 
things  the  difference  is  unessential.  In  each  case  the  consideration 
moved  from  the  oil  company  in  its  corporate  capacity,  the  new  com- 
pany's stock  issued  in  exchange  for  it  was  distributed  among  the  oil 
company's  stockholders  in  their  individual  capacity,  and  was  a  sub- 
stantial fruit  of  their  ownership  of  stock  in  the  oil  company,  in 
effect  a  dividend  out  of  the  accumulated  surplus. 

The  facts  are  in  all  essentials  indistinguishable  from  those  pre- 
sented in  United  States  v.  Phellis,  decided  this  day.  In  these  cases 
as  in  that,  regarding  the  general  effect  of  the  entire  transactions  re- 
sulting from  the  combined  action  of  the  mass  of  stockholders,  there 
was  apparently  little  but  a  reorganization  and  financial  readjust- 
ment of  the  affairs  of  the  companies  concerned,  here  a  subdivision 
of  companies,  without  immediate  effect  upon  the  personnel  of  the 
stockholders,  or  much  difference  in  the  aggregate  corporate  activities 
or  properties.  As  in  the  Phellis  case,  the  adoption  of  the  new  ar- 
rangement did  not  of  itself  produce  any  increase  of  wealth  to  the 
stockholders,  since  whsitever  was  gained  by  each  in  the  value  of  his 
new  pipe-line  stock  was  at  the  same  moment  withdrawn  through  a 
corresponding  diminution  of  the  value  of  his  oil  stock.  Neverthe- 
less the  new  stock  represented  assets  of  the  oil  companies  standing 
in  the  place  of  the  pipe-line  properties  that  before  had  constituted 
portions  of  their  surplus  assets,  and  it  was  capable  of  division  among 
stockholders  as  the  pipe-line  properties  were  not.  The  distribution, 
whatever  its  effect  upon  the  aggregate  interests  of  the  mass  of  stock- 


SECT.    IV.]  TOWXE    V.    MCELLIGOTT.  420 

holders,  constituted  in  the  case  of  each  individual  a  gain  in  the  form 
of  actual  exchangeable  assets  transferred  to  him  from  tlie  oil  com- 
pany for  his  separate  use  in  partial  realization  of  his  former  in- 
divisible and  contingent  interest  in  the  corporate  surplus.  It  was 
in  substance  and  effect,  not  merely  in  form,  a  dividend  of  profits  by 
the  corporation,  and  individual  income  to  tiie  stockbolder. 

The  opinion  just  delivered  in  United  States  v.  Phellis  sufficiently 
indicates  the  ground  of  our  conclusion  that  the  judgment  in  each  of 
the  present  cases  must  be  affirmed. 

Claeke,  J.,  took  no  part  in  the  consideration  or  decision  of  these 
cases. 

Va-N  Devanter  and  McHeynolds,  JJ.,  dissent. 


TOWXE  V.  McELLIGOTT. 

District  Court  of  the  Uxited  States.     1921. 
[Reported  274  Fed.  960.] 

This  case  arises  upon  demurrer  to  a  complaint  by  a  taxpayer  for 
money  paid  on  income  taxes.  It  raises  two  questions:  First,  whether 
the  profits  realized  upon  the  sale  of  the  plaintiff's  shares  of  stock 
were  correctly  computed;  second,  whether  a  surtax  of  72  per  cent 
on  such  profits  was  confiscatory. 

The  first  question  depends  upon  these  facts :  The  plaintiff  owned 
shares  in  a  corporation  before  March  1,  1913,  and  bought  other 
shares  thereafter.  Later  he  received  a  stock  dividend  of  50  per  cent 
upon  all  his  shares.  In  1918  he  sold  some  of  his  shares,  including 
those  certificates  which  he  had  held  on  March  1,  1913,  those  which  he 
had  bought  later,  and  some  of  those  which  he  had  received  as  a 
stock  dividend.  The  tax  was  collected  on  the  following  basis:  The 
plaintiff  was  charged  with  the  gross  sale  price  and  credited  on  each 
share  sold  with  the  average  cost  of  all  the  shares.  This  average  for 
each  share  was  computed  by  dividing  the  gross  cost  of  all  such  shares 
by  the  number  of  the  shares,  including  the  shares  declared  as  a 
stock  dividend.  The  plaintiff  argues  that  he  should  be  credited  with 
the  actual  cost  of  each  certificate,  computing  the  cost  of  the  shares 
declared  as  a  stock  dividend  at  nothing.  Thus  the  difference  between 
the  parties  is  whether  in  estimating  the  taxpayer's  credit  on  each 
share  sold,  the  stock  dividend  shares  should  be  brought  into  hotchpot 
with  the  shares  on  which  the  stock  dividend  was  declared. 

Learned  Hand,  D.  J.  I  shall  take  up  the  second  point  first, 
since  if  it  were  sound  it  would  dispose  of  the  whole  case.  In  brief  it 
comes  to  this,  that  a  tax  of  72  per  cent  on  the  last  increment  of  the 
plaintiff's  income,  and  a  tax  of  50  per  cent  upon  his  whole  income, 
is  confiscatory,  and  if  so,  void  under  the  Fifth  Amendment.  The 
term  "confiscatory,"  when  so  used,  is  clearly  one  of  degree,  because 
literally  all  taxes  are  pro  ianto  confiscatory.  Except  as  it  imports 
some  inequality  of  burden,  not  here  suggested,  it  can  mean  nothing 


430  TOWNE    V.    MCELLIGOTT.  [ciIAP.    VII. 

but  that  there  is  a  measure  to  the  amount  -which  the  Government 
may  seize  in  taxes  for  its  own  purposes.  The  plaintiff  relies  on  cer- 
tain language  in  Brushaber  v.  Union  Pacific  Railway,  240  U.  S.  1, 
2-i,  25,  which,  broken  from  its  context,  he  thinks  helps  his  conten- 
tion. The  meaning  of  that  language  is  only  that  there  may  be 
inequalities  in  the  rates  of  levy  great  enough  to  become  a  confisca- 
tion of  the  income  which  suffered  the  highest  rates.  The  Chief 
Justice  identified  possible  confiscation  with  a  tax  "so  wanting  in 
bases  for  classification  as  to  produce  such  a  gross  and  patent  in- 
equality as  to  inevitably  lead  to  the  same  conclusion,"  i.e.,  the  con- 
clusion that  the  property  was  confiscated.  I  do  not  read  this  language 
as  giving  any  color  for  arguing  that  when  the  inequalities  are  lawful 
the  rates  may  be  confiscatory  as  a  whole,  nor  is  there  any  such  sug- 
gestion in  the  books  tbat  I  have  seen. 

In  fact,  our  war  taxes  are  not  out  of  relation  to  the  sums  levied 
by  other  civilized  nations  faced  with  the  same  exigencies  as  the 
Great  War  imposed  upon  us.  In  critical  periods  of  a  nation's  life 
the  power  to  tax  may  be  necessary  to  preserve  it,  and  perhaps  there 
is  no  limit  beyond  which  it  may  not  subject  the  property  within  its 
reach  to  contribution.  I  need  not  go  so  far  as  that  in  this  case ;  it  is 
enough  that  the  powers  of  Congress  are  to  be  interpreted,  not  by 
dialectical  ingenuity  but  by  the  current  practices  of  nations  in  the 
exercise  of  similar  powers.  It  is  true  that  these  powers  are  limited 
and  that  those  limits  must  be  observed,  however  little  they  circum- 
scribe the  analogous  powers  of  other  legislatures.  Yet  when  the 
question  is  of  the  interpretation  of  those  broad  counsels  of  modera- 
tion contained  in  the  Fifth  Amendment,  we  must  interpret  the 
limitations  themselves  with  an  eye  to  the  practices  which  have  become 
tolerated  elsewhere  among  civilized  nations.  Were  it  not  so,  we 
should  be  limited  forever  to  the  political  usages  of  1789,  and  those 
amendments  which  were  intended  to  protect  the  individual  against 
extravagant  or  invidious  discrimination  would  become  a  strait- 
jacket  upon  the  Nation's  freedom. 

The  second  point  is  raised  by  Eisner  v.  Macomber,  252  U.  S.  189, 
and  must  be  ruled  by  its  implications.  Under  the  doctrine  of  that 
case  a  stock  dividend  is  not  regarded  as  new  property  at  all.  The 
old  certificates  represented  precisely  the  same  property  as  the  old 
and  new  do  thereafter.  The  old  shares  have  proliferated,  as  it  were, 
and  although  the  right  they  represented  has  now  suffered  a  cellular 
division  into  smaller  units  of  greater  number,  that  is  all  that  has 
happened.  In  view  of  this  it  seems  to  me  difficult  to  avoid  regard- 
ing the  old  and  new  shares  together  as  anything  more  than  the 
evidence  of  a  right  which  has  persisted  unchanged  through  the 
declaration  of  the  dividend.  It  might  have  been  possible  to  look  at 
the  new  shares  as  declared  from  the  surplus  and  the  surplus  as  not 
included  in  the  old  shares  (at  least  not  in  the  same  sense  as  the 
new  sbares  comprise  it),  but  all  such  notions  were  expressly  repudi- 
ated in  the  prevailing  opinion.  If  so,  each  of  the  new  shares  whether 
contained  in  the  old  or  the  new  certificates  represents  a  part  of  the 
original  property  purchased,  and  in  selling  the  first  certificate  the 


SECT.    IV.]  TOWNE    V.    MCELLIGOTT.  431 

stockholder  has  not  sold  the  whole  of  what  he  originally  bought  and 
should  not  be  credited  with  the  whole  purchase  price.  Judge  Rom:, 
in  Safe  Deposit,  etc.  Co.  v.  Miles,  2l!'.i  Fed.  H22,  has  adopted  the 
same  theory  of  computing  an  income  tax  in  a  stronger  ca.se.  There 
the  plaintiff  sold  some  "rights"  declared  upon  his  stock,  and  Judge 
Rose  computed  his  profit  in  substantially  the  same  way  as  1  suggest 
here. 

The  phiintifT  answers  this  argument  by  saying  that  if  s«j,  all 
shares  at  any  time  iichl  hy  a  stockholder  must  be  brought  into  hotch- 
pot and  averaged.  1  scarcely  think  that  consistency  requires  me  to 
go  so  far.  The  law  may,  and  in  fact  does,  recognize  an  identity  in 
every  share  which  can  indeed  be  traced  upon  the  books  of  the  com- 
pany, at  least  until  certificates  are  consolidated  and  later  subdivided. 
The  purchase  of  a  number  of  shares  can  be  earmarked  by  the  certif- 
icate and  it  is  an  enormous  convenience  to  keep  the  purchase 
separate.  Yet  it  is  possible  and  consistent  when  new  shares  are 
declared  to  attribute  them  ratably  in  subdivision  of  those  already 
issued.  They  are  not  so  entered  on  the  books,  it  is  true,  but  the 
i)()oks  are  not  kept  in  accordance  with  the  underlying  doctrine  of 
Kisner  v.  Macomber,  supra,  in  any  event.  At  least  the  earlier  cer- 
tificates need  not  lose  their  separate  identity  because  new  shares  are 
filiated  to  them  in  proper  proportion. 

An  illustration  will  make  clear  what  I  mean.  Suppose  a  man  has 
certificate  A  for  100  shares  bought  at  $100,  certificate  B  for  100 
bought  at  $150,  and  certificate  C  for  100  bought  for  $200.  Suppose, 
further,  that  a  stock  dividend  of  50  y)cr  cent  is  declared  and  he  get" 
one  certificate  D  for  150  shares  without  paying  anything.  If  he 
sells  certificate  A  he  would  be  deemed  to  sell  not  the  whole  of  his 
first  purchase  but  only  two-thirds  of  it,  and  he  could  credit  himself 
with  only  $6,666.  If  he  sold  certificate  B  he  would  credit  himself 
with  $10,000,  and  if  certificate  C  with  $13,333.  If  he  sold  certifi- 
cate D  he  could  credit  himself  with  $15,000,  made  up  of  $3,333 
from  his  first  purchase,  $5,000  from  his  second,  and  $6,666  from 
his  third.  If,  on  the  other  hand,  he  sold  only  a  part  of  certificate  D, 
some  arbitrary  rule  of  apportionment  must  be  adopted  allocating 
the  shares  sold  among  his  purchases.  The  most  natural  analogy  is 
with  payment  upon  an  open  account,  where  the  law  has  always 
allocated  the  earlier  payments  to  the  earlier  debts  in  the  absence  of 
a  contrary  intention.  Accordingly,  if  all  the  new  shares  were  not 
sold  at  once,  I  think  the  first  sales  would  be  attributed  to  the  first 
purchases  still  remaining  unsold  when  the  stock  dividend  was  de- 
clared. I  do  not  see  that  this  method  will  result  in  confusion  in  its 
application,  and  it  carries  into  effect  the  underlying  theory  of 
Eisner  v.  Macomber,  supra. 

The  tax  at  bar  was  not  computed  quite  in  this  way,  because  all  the 
purchases  before  the  declaration  of  the  stock  dividend  were  brought 
into  hotchpot.  This,  I  think,  was  inconsistent  with  the  theory  of 
the  identity  of  the  shares  involved  in  each  purchase.  It  must,  there- 
fore, be  recalculated,  which  the  parties  have  kindly  consented  to  do 
if  they  are  told  the  rule.     The  credits  will  be  computed  as  follows : 


432    MEKCIIAlJfTS'  LOAN  AND  TKUST  CO.  V.  SMIETANKA.    [cHAP.  VU. 

Upon  each  certificate  held  on  March  1,  1913,  two-thirds  its  value  on 
tliat  day,  i.e.,  $230.  Upon  each  certificate  bought  at  $100,  $66%. 
Upon  each  certificate  for  stock  dividend  shares,  if  issued  against  any 
specified  earlier  certificate,  the  same  credit  per  share  as  the  shares  of 
that  certificate.  If  the  certificate  of  new  shares  is  not  so  earmarked, 
or  if  but  one  certificate  was  issued  for  the  new  shares,  then  credit 
will  be  allowed  of  two-thirds  the  value  of  the  shares  on  March  1, 
1913,  until  half  the  number  of  shares  have  been  sold  which  the 
plaintiff  held  on  March  1,  1913,  and  retained  the  stock  dividend. 

The  formal  disposition  of  the  demurrer  will  depend  upon  this 
calculation.  If  the  tax  is  less  than  that  collected  the  demurrer  will 
be  overruled  and  the  plaintiff  will  take  judgment  for  the  difference ; 
if  it  is  greater,  or  the  same,  the  demurrer  will  be  sustained  and  the 
complaint  dismissed  with  costs. 


MERCHANTS'  LOAN  AND  TEUST  CO.  v.  SMIETANKA. 
Supreme  Court  of  the  United  States.    1921. 

[Reported  255   U.  8.  509.] 

Clarke,  J.  A  writ  of  error  brings  this  case  here  for  review  of  a 
judgment  of  the  District  Court  of  the  United  States  for  the  North- 
ern District  of  Illinois,  sustaining  a  demurrer  to  a  declaration  in 
assumpsit  to  recover  an  assessment  of  taxes  for  the  year  1917,  made 
under  warrant  of  the  income  tax  act  of  Congress  approved  September 
8,  1916  (39  Stat.,  ch.  163,  p.  756),  as  amended  by  the  act  approved 
October  3,  1917  (10  Stat.,  ch.  63,  p.  300).  Payment  was  made  under 
protest,  and  the  claim  to  recover  is  based  upon  the  contention  that 
the  fund  taxed  was  not  "  income  "  within  the  scope  of  the  sixteenth 
amendment  to  the  Constitution  of  the  United  States,  and  that  the 
effect  given  by  the  lower  court  to  the  act  of  Congress  cited  renders 
it  unconstitutional  and  void.  This  is  sufficient  to  sustain  the  writ  of 
error.    Towne  v.  Eisner,  245  U,  S.  418. 

Arthur  Ryerson  died  in  1912,  and  the  plaintiff  in  error  is  trustee, 
under  his  will,  of  property  the  net  income  of  which  was  directed  to 
be  paid  to  his  widow  during  her  life  and  after  her  death  to  be  used 
for  the  benefit  of  his  children,  or  their  representatives,  until  each  child 
should  arrive  at  25  years  of  age,  when  each  should  receive  his  or  her 
share  of  the  trust  fund. 

The  trustee  was  given  the  fullest  possible  dominion  over  the  trust 
estate.  It  was  made  the  final  judge  as  to  what  "net  income"  of 
the  estate  should  be,  and  its  determination  in  this  respect  was  made 
binding  upon  all  parties  interested  therein,  "except  that  it  is  my 
will  that  stock  dividends  and  accretions  of  selling  values  shall  be 
considered  principal  and  not  income." 

The  widow  and  four  children  were  living  in  1917. 


SECT.  IV.]    merchants'  LOAN  AND  TRUST  CO.  V.  SMIETANKA.      433 

Among  the  assets  which  came  to  the  custody  of  the  trustee  were 
9,522  shares  of  the  capital  stock  of  Joseph  T.  Ryerson  &  Son,  a 
corporation.  It  is  averred  that  the  cash  value  of  these  shares,  on 
March  1,  1913,  was  $5(51,798,  and  that  they  were  sold  for 
$1,280,996.64  on  February  2,  1917.  The  Commissioner  of  Internal 
Revenue  treated  the  difference  between  the  value  of  the  stock  on 
March  1,  1913,  and  the  amount  for  which  it  was  sold  on  February  2, 
1917,  as  income  for  the  year  1917,  and  upon  that  amount  assessed 
the  tax  which  was  paid.  No  question  is  made  as  to  the  amount  of 
the  tiix  if  the  collection  of  it  was  lawful. 

The  ground  of  the  protest  and  the  argument  for  the  plaintiff  in 
error  here  is  that  the  sum  charged  as  "  income  "  represented  appreci- 
ation in  the  value  of  the  capital  assets  of  the  estate  which  was  not 
'■■  income  "  within  the  meaning  of  the  Sixteenth  Amendment  and 
therefore  could  not,  constitutionally,  be  taxed  without  apportion- 
ment as  required  by  §  2,  cl.  3,  and  by  §  9,  cl.  4,  of  Art.  1  of  tlie 
Constitution  of  the  United  States. 

It  is  first  argued  that  the  increase  in  value  of  the  stock  could  not 
be  lawfully  taxed  under  the  act  of  Congress  because  it  was  not  in- 
come to  the  widow,  for  she  did  not  receive  it  in  1917,  and  never 
can  receive  it,  that  it  was  not  income  in  that  year  to  the  children, 
for  they  did  not  then  and  may  never  receive  it,  and  that  it  was  not 
income  to  the  trustee,  not  only  because  the  will  creating  the  trust 
required  that  "stock  dividends  and  accretions  of  selling  value  shall 
be  considered  principal  and  not  income,"  but  also  because  in  the 
"  common  understanding  "  the  term  "  income  "  does  not  comprehend 
such  a  gain  or  profit  as  we  have  here,  which  it  is  contended  is  really 
an  accretion  to  capital  and  therefore  not  constitutionally  taxable 
under  Eisner  r.  Macomber,  252  U.  S.  189. 

The  provision  of  the  will  may  be  disregarded.  It  was  not  within 
the  power  of  the  testator  to  render  the  fund  nontaxable. 

Assuming  for  the  present  that  there  was  constitutional  power  to 
tax  such  a  gain  or  profit  as  is  here  involved,  are  the  terms  of  the 
statute  comprehensive  enough  to  include  it? 

Section  2  (a)  of  the  act  of  September  8,  1916  (39  Stat.  757; 
40  Stat.  300,  307,  §212),  applicable  to  the  case,  defines  the  income 
of  "  a  taxable  person "  as  including  "  gains,  profits,  and  income 
derived  from  .  .  .  sales,  or  dealings  in  property,  whether  real  or 
personal,  growing  out  of  the  ownership  or  use  of  or  interest  in  real 
or  personal  property  ...  or  gains  or  profits  and  income  derived  from 
any  source  whatever." 

Plainly  the  gain  we  are  considering  was  derived  from  the  sale  of 
personal  property,  and,  very  certainly,  the  comprehensive  last  clause 
"gains  or  profits  and  income  derived  from  any  source  whatever," 
must  also  include  it,  if  the  trustee  was  a  "taxable  person"  within 
the  meaning  of  the  act  when  the  assessment  was  made. 

That  the  trustee  was  such  a  "  taxable  person "  is  clear  from 
§  1204  (1)  (c)  of  the  act  of  October  3,  1917  (40  Stat.  331),  which 
requires  that  "trustees,  executors  .  .  .  and  all  persons,  corporations 
or  associations,  acting  in  any  fiduciary  capacity,  shall  make  and 


434  merchants'  loan  and  trust  co.  v.  smietanka.  [ciiAr.  vir. 

render  a  return  of  the  income  of  the  person,  trust,  or  estate  for  whom 
or  which  they  act,  and  be  subject  to  all  the  provisions  of  this  title 
which  apply  to  individuals." 

And  section  2  (b),  act  of  September  8,  1916,  supra,  specifically 
declares  that  the  "  income  received  by  estates  of  deceased  persons 
during  the  period  of  administration  or  settlement  of  the  estate,  .  .  . 
or  any  kind  of  property  held  in  trust,  including  such  income  accumu- 
lated in  trust  for  the  benefit  of  unborn  or  unascertained  persons,  or 
persons  with  contingent  interests,  and  income  held  for  future  distri- 
bution under  the  terms  of  the  will  or  trust  shall  be  likewise  taxed, 
the  tax  in  each  instance,  except  when  the  income  is  returned  for  the 
purpose  of  the  tax  by  the  beneficiary,  to  be  assessed  to  the  executor, 
administrator,  or  trustee,  as  the  case  may  be." 

Further,  section  2  (c)  clearly  shows  that  it  was  the  purpose 
of  Congress  to  tax  gains,  derived  from  such  a  sale  as  we  have  here, 
in  the  manner  in  which  this  fund  was  assessed,  by  providing  that 
"  for  the  purpose  of  ascertaining  the  gain  derived  from  the  sale  or 
other  disposition  of  property,  real,  personal,  or  mixed,  acquired 
before  March  1,  1913,  the  fair  market  price  or  value  of  such  prop- 
erty as  of  March  1,  1913,  shall  be  the  basis  for  determining  the 
amount  of  such  gain  derived." 

Thus,  it  is  the  plainly  expressed  purpose  of  the  act  of  Congress 
to  treat  such  a  trustee  as  we  have  here  as  a  "taxable  person,"  and 
for  the  purposes  of  the  act  to  deal  with  the  income  received  for 
others  precisely  as  if  the  beneficiaries  had  received  it  in  person. 

There  remains  the  question,  strenuously  argued,  whether  this  gain 
in  four  years  of  over  $700,000  on  an  investment  of  about  $500,000 
is  "  income  "  within  the  meaning  of  the  Sixteenth  Amendment  to 
the  Constitution  of  the  United  States. 

The  question  is  one  of  definition  and  the  answer  to  it  may  be 
found  in  recent  decisions  of  this  court. 

The  corporation  excise  tax  act  of  August  5,  1909  (36  Stat.  11, 
112),  was  not  an  income  tax  law,  but  a  definition  of  the  word  "in- 
come "  was  so  necessary  in  its  administration  that  in  an  early  case  it 
was  formulated  as  "A  gain  derived  from  capital,  from  labor,  or 
from  both  combined."  Stratton's  Independence  v.  Howbert,  231 
U.  S.  399,  415. 

This  definition,  frequently  approved  by  this  court,  received  an 
addition,  in  its  latest  income  tax  decision,  which  is  especially  sig- 
nificant in  its  application  to  such  a  case  as  we  have  here,  so  that  it 
now  reads :  "  Income  may  be  defined  as  a  gain  derived  from  capital, 
from  labor,  or  from  both  combined,  provided  it  he  understood  to 
include  profit  gained  through  sale  or  conversion  of  capital  assets." 
Eisner  v.  Macomber,  252  U.  S.  189,  207. 

The  use  of  this  definition  of  "income"  in  the  decision  of  cases 
arising  under  the  corporation  excise  tax  act  of  August  5,  1909, 
and  under  the  income  tax  acts  is,  we  think,  decisive  of  the  case 
before  us.  Thus,  in  two  cases  arising  under  the  corporation  excise 
tax  act: 

In  Hays  v.  Gauley  Mountain  Coal  Co.,  247  U.  S.  189,  a  coal  com- 


SECT.  IV.]    MEECHANTS'  LOAN  AND  TKLST  CO.  C.  HMIKTASKA.      435 

pany,  without  corporate  authority  to  trade  in  stocks,  purchased 
shares  in  another  coal-ininin*,'  company  in  1902,  which  it  sold  in 
liJlJ,  realizing  a  profit  oi'  $210,000.  Over  tiie  same  ohjection  made 
in  this  case,  that  the  fund  was  merely  converted  capital,  this  court 
held  that  so  much  of  the  profit  upon  the  sale  of  the  stock  as  accrued 
suhsequent  to  tlie  effective  date  of  the  act  was  properly  treated  as  in- 
come received  during  I'JII,  in  assessing  the  tax  for  that  year. 

Jn  United  States  v.  Cleveland,  Cincinnati,  Chicago  &  St.  Louis 
Eailway  Co.,  247  U.  S.  11)5,  a  railroad  company  purchased  shares  of 
stock  in  another  railroad  company  in  11)00  which  it  sold  m  11)01), 
realizing  a  profit  of  $814,000.  Here,  again,  over  the  same  ohjection! 
this  court  held  that  the  part  of  the  profit  which  accrued  suhsequent 
to  the  effective  date  of  the  act  was  pr()i)erly  treated  as  income  re- 
ceived during  the  year  11)01)  for  the  purposes  of  the  act. 

Thus,  from  the  i>rice  realized  from  the  sale  of  stock  by  two  in- 
vestors, as  distinguished  from  dealers,  and  from  a  single  transac- 
tion, as  distinguished  from  a  course  of  business,  the  value  of  the 
stock  on  the  eft'ective  date  of  the  tax  act  was  deducted  and  the  result- 
ing gain  was  treated  by  this  court  as  "  income  "  by  which  the  tax  was 
measured. 

It  is  obvious  that  these  decisions  in  principle  rule  the  case  at  bar 
i^  the  word  ''  income  "  has  the  same  meaning  in  the  income  tax  act 
of  1913  that  it  had  in  the  corporation  excise  tax  act  of  1909,  and 
that  it  lias  the  same  scope  of  meaning  was  in  effect  decided  in 
Soutliern  Pacific  Co.  v.  Lowe,  247  U.  S.  330,  335,  where  it  was  assumed 
for  the  purposes  of  decision  that  there  was  no  difference  in  its  mean- 
in<T  as  used  in  the  act  of  1909  and  in  the  income  tax  act  of  1913. 
There  can  be  no  doubt  tliat  the  word  must  be  given  the  same  mean- 
ing and  content  in  the  income  tax  acts  of  1916  and  1917  that  it  had 
in  the  act  of  1913.  "When  to  this  we  add  that  in  Eisner  v.  Macom- 
ber,  svprn,  a  case  arising  under  tlie  same  income  tax  act  of  1916 
which  is  here  involved,  the  definition  of  "income"  which  was  ap- 
plied was  adopted  from  Stratton's  Independence  r.  Howbert,  supra, 
arising  under  the  corporation  excise  tax  act  of  1909,  with  the  addi- 
tion that  it  should  include  "profit  gained  through  sale  or  conver- 
sion of  capital  assets,"  there  would  seem  to  be  no  room  to  doubt 
that  the  word  must  he  given  the  same  meaning  in  all  of  the  income 
tax  acts  of  Congress  that  was  given  to  it  in  tlie  corporation  excise 
tax  act  and  that  what  that  meaning  is  has  now  become  definitely 
settled  by  decisions  of  this  court. 

In  determining  the  definition  of  the  word  "  income "  thus  ar- 
rived at,  this  court  has  consistently  refused  to  enter  into  the  refine- 
ments of  lexicographers  or  economists  and  has  approved,  in  the 
definitions  quoted,  what  it  believed  to  be  the  commonly  understood 
meaning  of  the  term  which  must  have  been  in  the  minds  of  the 
people  when  they  adopted  the  Sixteenth  Amendment  to  the  Con- 
stitution. Dovle  /•.  Alitchell  Bros.  Co..  247  V.  S.  179,  185;  Eisner 
V.  :Macomber,  "252  U.  S.  189,  206,  207.  Notwithstanding  the  full 
argument  heard  in  this  case  and  in  the  series  of  cases  now  under 
consideration,   we   continue   entirely   satisfied   with   that   definition. 


436  iIEKClIA^-Ts''  LOAX  AND  TRUST  CO.  V.  SMIETA]!7KA.   [ciIAP.  VII. 

and,  since  the  fund  here  taxed  was  the  amount  realized  from  the 
sale  of  the  stock  in  1917,  less  the  capital  investment  as  determined 
by  the  trustee  as  of  March  1,  1913,  it  is  palpable  that  it  was  a 
"gain  or  profit"  "produced  by"  or  "derived  from"  that  invest- 
ment, and  that  it  "  proceeded,"  and  was  "  severed "  or  rendered 
severable,  from  it,  by  the  sale  for  cash^  and  thereby  became  that 
"realized  gain"  which  has  been  repeatedly  declared  to  be  taxable 
income  within  the  meaning  of  the  constitutional  amendment  and 
the  acts  of  Congress.  Doyle  v.  Mitchell  Bros.  Co.  and  Eisner  v. 
Macomber,  supra. 

It  is  elaborately  argued  in  this  case,  in  Xo.  609,  Eldorado  Coal 
&  ]\Iining  Co.  v.  Harry  W.  Mager,  collector,  etc.,  submitted  with  it, 
and  in  other  cases  since  argued,  that  the  word  "  income,"  as  used  in 
the  Sixteenth  Amendment  and  in  the  income  tax  act  we  are  con- 
sidering, does  not  include  the  gain  from  capital  realized  by  a  single 
isolated  sale  of  property  but  that  only  the  profits  realized  from  sales 
by  one  engaged  in  buying  and  selling  as  a  business  —  a  merchant,  a 
real  estate  agent,  or  broker — constitute  income  which  may  be  taxed. 

It  is  sufficient  to  say  of  this  contention  that  no  such  distinction 
was  recognized  in  the  Civil  AVar  income  tax  act  of  1867  (14  Stat. 
471,  478),  or  in  the  act  of  1894  (28  Stat.  509,  553),  declared  un- 
constitutional on  an  unrelated  ground;  that  it  was  not  recognized 
in  determining  income  under  the  excise  tax  act  of  1909,  as  the  cases 
cited,  snpra,  show ;  that  it  is  not  to  be  found,  in  terms,  in  any  of  the 
income  tax  provisions  of  the  internal  revenue  acts  of  1913,  1916, 
1917  or  1919;  that  the  definition  of  the  word  "income"  as  used 
in  the  Sixteenth  Amendment,  which  has  been  developed  by  this 
court,  does  not  recognize  any  such  distinction;  that  in  departmental 
practice,  for  now  seven  years,  such  a  rule  has  not  been  applied;  and 
that  there  is  no  essential  difference  in  the  nature  of  the  transaction 
or  in  the  relation  of  the  profit  to  the  capital  involved,  whether  the 
sale  or  conversion  be  a  single,  isolated  transaction  or  one  of  many. 
The  interesting  and  ingenious  argument,  which  is  earnestly  pressed 
upon  us,  that  this  distinction  is  so  fundamental  and  obvious  that  it 
must  be  assumed  to  be  a  part  of  the  "general  imderstanding "  of 
the  meaning  of  the  word  "  income,"  fails  to  convince  us  that  a  con- 
struction should  be  adopted  which  would,  in  a  large  measure,  defeat 
the  purpose  of  the  amendment. 

The  opinions  of  the  courts  in  dealing  with  the  rights  of  life 
tenants  and  remaindermen  in  gains  derived  from  invested  capital, 
especially  in  dividends  paid  by  corporations,  are  of  little  value  in 
determining  such  a  question  as  we  have  here,  influenced  as  such 
decisions  are  by  the  terms  of  the  instruments  creating  the  trusts 
involved  and  by  the  various  rules  adopted  in  the  various  jurisdic- 
tions for  attaining  results  thought  to  be  equitable.  Here  the  trustee, 
acting  within  its  powers,  sold  the  stock,  as  it  might  have  sold  a 
building,  and  realized  a  profit  of  $700,000,  which  at  once  became 
assets  in  its  possession  free  for  any  disposition  within  the  scope  of 
the  trust,  but  for  the  purposes  of  taxation  to  be  treated  as  if  the 
trustee  were  the  sole  owner. 


SECT.  IV.]  GOODEICII  V.  EDWAEDS.  437 

Gray  v.  Darlington,  15  Wall.  G3,  much  relied  upon  in  argument, 
was  sufficiently  distinguished  from  cases  such  as  we  have  here  in 
Hays  V.  Gauley  Mountain  Coal  Co.,  247  U.  S.  189,  191.  The 
differences  in  tlie  statutes  involved  render  inapplicable  the  expres- 
sions in  the  opinion  in  that  case  (not  necessary  to  the  decision  of 
it)  as  to  distinctions  between  income  and  increase  of  capital. 

In  Lynch  v.  Turrish,  247  U.  S.  221,  also  much  relied  upon,  it 
is  expressly  stated  that,  "according  to  the  lacl  admitted,  there  was 
no  increase  after  that  date  (March  1,  1913)  and  therefore  no  in- 
crease subject  to  the  law."  For  this  reason  the  questions  here  dis- 
cussed and  decided  were  not  there  presented. 

The  British  Income  Tax  decisions  are  interpretations  of  statutes 
so  wholly  different  in  their  wording  from  the  acts  of  Congress  which 
we  are  considering  that  they  are  quite  without  value  in  arriving 
at  the  construction  of  the  laws  here  involved. 

Another  assessment  on  a  small  gain  realized  from  a  sale  of  bonds, 
also  made  by  the  trustee  in  1917,  does  not  present  any  questions 
other  than  those  which  we  have  discussed,  and  therefore  it  does  not 
call  for  separate  consideration. 

The  judgment  of  the  District  Court  is  affirmed. 

Holmes  and  Brandeis,  JJ.,  because  of  prior  decisions  of  the 
court,  concur  only  in  the  judgment. 


GOODRICH  V.  EDWARDS. 
Supreme  Court  of  the  United  States.    1921. 

[Reported  255  U.  8.  527.] 

Clarke,  J.  The  plaintiff  in  error  sued  the  defendant,  a  col- 
lector of  internal  revenue,  to  recover  income  taxes  assessed  in  1920 
for  the  year  1916  and  paid  under  protest  to  avoid  penalties.  A 
demurrer  to  the  complaint  was  sustained  and  the  constitutional 
validity  of  a  law  of  the  United  States  is  so  involved,  that  the  case 
is  properly  here  by  writ  of  error.     Towne  v.  Eisner,  245  U.  S.  418. 

Two  transactions  are  involved. 

(1)  In  1912  the  plaintiff  in  error  purchased  1,000  shares  of  the 
capital  stock  of  a  mining  company,  for  which  he  paid  $500.  It  is 
averred  that  the  stock  was  worth  $695  on  March  1,  1913,  and  that 
it  was  sold  in  March,  1916,  for  $13,931.22.  The  tax  which  the 
plaintiff  in  error  seeks  to  recover  was  assessed  on  the  difference 
between  the  value  of  the  stock  on  March  1,  1913,  and  the  amount 
for  which  it  was  sold. 

(2)  The  plaintiff  in  error  being  the  owner  of  shares  of  the  capital 
stock  of  another  corporation,  in  1912  cxclianged  them  for  stock,  in 
a  reorganized  company,  of  the  then  value  of  $291,600.  It  is  averred 
and  admitted  that  on  March  1,  1913,  the  value  of  this  stock  was 
$148,635.50,  and  that  it  was  sold  in  1916  for  $269,346.25.  Al- 
though it  is  thus  apparent  that  the  stock  involved  was  of  less  value 


438  GOODRICH  v.  edwakds.  [chap.  vn. 

on  March  1,  1913,  than  when  it  was  acquired,  and  that  it  was 
ultimately  sold  at  a  loss  to  the  owner,  nevertheless  the  collector 
assessed  the  tax  on  the  difference  between  the  value  on  March  1, 
1913,  and  the  amount  for  which  it  was  sold. 

The  plaintiff  in  error  seeks  to  recover  the  whole  of  these  two 
assessments. 

The  same  contention  is  made  with  respect  to  each  of  these  pay- 
ments as  was  made  in  No.  608,  Merchants  Loan  &  Trust  Co.,  as 
trustee,  v.  Julius  F.  Smietanka,  collector  of  internal  revenue,  this 
day  decided,  viz.,  that  the  amounts  realized  from  the  sales  of  the 
stocks  were  in  their  inherent  nature  capital  as  distinguished  from 
income,  being  an  increment  in  value  of  the  securities  while  owned 
and  held  as  an  investment  and  therefore  not  taxable  under  the 
Revenue  Act  of  1916  (39  Stat.  756)  as  amended  in  1917  (40  Stat. 
300)  or  under  any  constitutional  law. 

With  respect  to  the  first  payment.  It  is  plain  that  this  assess- 
ment was  on  the  profit  accruing  after  March  1,  1913,  the  effective 
date  of  the  act,  realized  to  the  owner  by  the  sale  after  deducting 
his  capital  investment.  The  question  involved  is  ruled  by  No.  608, 
supra,  and  the  amount  was  properly  taxed. 

As  to  the  second  payment.  The  Government  confesses  error  in 
the  judgment  with  respect  to  this  assessment.  The  stock  was  sold 
in  the  year  for  which  the  tax  was  assessed  for  $22,253.75  less  than 
its  value  when  it  was  acquired,  but  for  $120,710.75  more  than  its 
value  on  March  1,  1913,  and  the  tax  was  assessed  on  the  latter 
amount. 

The  act  under  which  the  assessment  was  made  provides  that  the 
net  income  of  a  taxable  person  shall  include  gains,  profits,  and  in- 
come derived  from  .  .  .  sales  or  dealings  in  property,  whether  real 
or  personal  ...  or  gains  or  profits  and  income  derived  from  any 
source  whatever.     (39  Stat.  757;  40  Stat.  300,  307.) 

Section  2  (c)  of  this  same  act  provides  that  "for  the  purpose  of 
ascertaining  the  gain  derived  from  a  sale  or  other  disposition  of 
property,  real,  personal,  or  mixed,  acquired  before  March  1,  1913, 
the  fair  market  price  or  value  of  such  property  as  of  March  1,  1913, 
shall  be  the  basis  for  determining  the  amount  of  such  gain  derived.'' 

And  the  definition  of  "  income  "  approved  by  this  court  is :  "A 
gain  derived  from  capital,  from  labor,  or  from  both  combined,  pro- 
vided it  be  understood  to  include  profits  gained  through  sale  or 
conversion  of  capital  assets."  Eisner  v.  Macomber,  252  U.  S. 
189,  207. 

It  is  thus  very  plain  that  the  statute  imposes  the  income  tax  on 
the  proceeds  of  the  sale  of  personal  property  to  the  extent  only  that 
gains  are  derived  therefrom  by  the  vendor,  and  we  therefore  agree 
with  the  Solicitor  General  that  since  no  gain  was  realized  on  this 
investment  l)y  the  plaintiff  in  error  no  tax  should  have  been 
assessed  against  him. 

Section  2  (c)  is  applicable  only  where  a  gain  over  the  original 
capital  investment  has  been  realized  after  March  1,  1913,  from  a 
sale  or  other  disposition  of  property. 


SECT.  IV.]  LAWEENCE  V.  WARDELL.  439 

It  results  that  the  judgment  of  the  District  Court  as  to  the  first 
assessment,  as  we  have  described  it,  is  aiiinned,  and  that  as  to  the 
second  assessment  it  is  reversed,  and  the  case  is  remanded  to  that 
court  for  furtlier  proceedings  in  conformity  with  this  opinion. 

Eeversed  in  part;  allirmed  in  part. 

Holmes  and  Buandkis,  J  J.,  because  of  prior  decisions  of  the 
court,  concur  only  in  tlie  judgment. 


LAWRENCE  v.  WARDELL. 
Circuit  Court  of  Appeals.     1921. 

[Reported  273  Fed.  205.] 

In  an  action  by  plaintilf  Lawrence  to  recover  certain  sums  paid 
under  protest  to  the  defendant  collector  of  internal  revenue,  the 
District  Court  sustained  a  general  demurrer  to  the  complaint  and 
entered  judgment  of  dismissal.  Writ  of  error  was  taken  out  in 
order  to  present  the  question  whether  sections  210  and  211  of  the 
revenue  act  of  1918  apply  to  the  1918  income  of  a  citizen  of  the 
United  States  residing  in  the  Philippine  Islands. 

The  facts  are  these : 

Plaintiff,  a  citizen  of  the  L'nited  States,  was  a  resident  of  the 
Philippine  Islands  in  1918  and  until  March,  1919.  In  January, 
1919,  in  the  Philippines  plaintiff  paid  an  income  tax  representing  the 
full  amount  of  tax  upon  his  1918  income  computed  in  accordance  with 
the  revenue  act  of  1916,  as  amended  by  the  revenue  act  of  1917. 
In  March,  1919,  plaintiff  became  a  resident  of  California  and  in 
July,  1919,  was  required  by  the  defendant  collector  to  pay  income 
tax  upon  his  1918  income  computed  in  accordance  witii  the  revenue 
act  of  1918,  with  credit  for  the  amount  paid  in  the  Philipj)ines. 
Defendant  paid  under  protest  and  his  claim  for  refund  was  denied. 
The  position  of  the  plaintiff  is  that  by  section  1400  of  the  revenue 
act  of  1918,  Title  I  of  the  revenue  act  of  1916  as  amended  by  the 
revenue  act  of  1917  is  still  in  force  as  to  1918  income  of  residents 
of  the  Philippine  Islands;  that  by  section  261  of  the  revenue  act 
of  1918  plaintiff  was  required  to  pay  in  the  Philippines  the  income 
tax  as  provided  by  the  revenue  act  of  ]!n6  on  his  whole  income  of 
1918;  tliat  sections  210  and  211  of  the  revenue  act  of  1918  imposed 
an  income  tax  only  in  lieu  of  the  corresponding  taxes  of  tiie  revenue 
acts  of  li)16  and  1917  and  are  not  applicable  where  the  earlier  acts 
stand  unrepealed  ;  tliat  the  legislature  of  tlie  Philippine  Islands  has 
not  amended  or  modified  or  repealed  the  income  tax  provisions  of  the 
revenue  acts  of  1916  and  1917  as  to  the  income  of  the  year  1918. 
On  the  other  hand  it  is  contended  that  the  act  of  1916,  as  amended 
by  the  act  of  1917,  was,  so  far  as  it  affected  the  Philippine  Islands, 
enacted  by  Congress  in  its  capacity  of  a  local  legislature  for  the 


440  LAWEEXCE   V.   \VAIJDELL.  [cHAP.  VII. 

Philippine  Island?,  and  that  the  revenne  act  of  1918  imposes  a  tax 
equally  upon  all  citizens  of  the  United  States  without  regard  to 
the  place  of  residence.  Summarizing  the  pertinent  statutes,  they 
are  as  follows : 

By  the  revenue  act  of  1916,  Title  I,  part  1,  it  is  provided  in  sec- 
tion 1  (a)  that  taxes  should  be  levied  and  collected  annually  upon 
the  entire  net  income  received  in  the  preceding  calendar  year  by 
every  individual  a  citizen  or  resident  of  the  United  States.  Sec- 
tion 23  made  the  provisions  of  the  title  extend  to  Porto  Rico  and 
the  Philippine  Islands,  provided  that  the  administration  of  the  law 
and  the  collection  of  taxes  imposed  in  Porto  Pico  and  the  Philippine 
Islands  should  be  by  internal-revenue  officers  of  the  government  of 
those  islands,  and  that  all  revenue  collected  in  those  islands  under 
the  act  "shall  accrue  intact  to  the  general  governments  thereof/' 
By  the  revenue  act  of  1917,  approved  October  3,  1917,  it  is  provided, 
section  1  — 

That  in  addition  to  the  normal  tax  imposed  by  the  subdivision 
(or)  of  section  one  of  the  act  entitled  "An  act  to  increase  the 
revenue,  and  for  other  purposes,"  approved  September  8,  1916,  there 
shall  be  levied,  assessed,  collected,  and  paid  a  like  normal  tax  of  two 
per  centum  upon  the  income  of  every  individual  a  citizen  or  resident 
of  the  United  States  received  in  the  calendar  year  1917  and  every 
calendar  year  thereafter. 

The  provisions  did  not  extend  to  the  Philippines,  and  the  local 
legislature  was  given  power  to  amend  or  repeal  income  taxes  in 
force.  The  revenue  act  of  1918,  approved  February  24,  1919,  Title 
II,  part  2,  provides  — 

Sec.  210.  That  in  lieu  of  the  taxes  imposed  by  subdivision  (a) 
of  section  1  of  the  revenue  act  of  1916  and  by  section  1  of  the 
revenue  act  of  1917  there  shall  be  levied,  collected,  and  paid  for 
each  taxable  year  upon  the  net  income  of  every  individual  a  normal 
tax  at  the  following  rates :  .  .  . 

Sec.  211.  (a)  That,  in  lieu  of  the  taxes  imposed  by  subdivision 
(&)  of  section  1  of  the  revenue  act  of  1916  and  by  section  2  of  the 
revenue  act  of  1917,  but  in  addition  to  the  normal  tax  imposed  by 
section  210  of  this  act,  there  shall  be  levied,  collected,  and  paid 
for  each  taxable  year  upon  the  net  income  of  every  individual,  a 
surtax  equal  to  the  sum  of  the  following:  .  .  . 

Sec.  222.  (a)  That  the  tax  computed  under  part  2  of  this  title 
shall  be  credited  with  — 

(1)  In  the  case  of  a  citizen  of  the  United  States  the  amount  of 
any  income,  war-profits  and  excess-profits  taxes  paid  during  the 
taxable  year  to  any  foreign  country,  upon  income  derived  from 
sources  therein,  or  to  any  possession  of  the  United  States;  and  .  .  . 

Sec.  260.  That  any  individual  who  is  a  citizen  of  any  possession 
of  the  United  States  (but  not  otherwise  a  citizen  of  the  United 
States)  and  who  is  not  a  resident  of  the  United  States,  shall  be 
subject  to  taxation  under  this  title  only  as  to  income  derived  from 
sources  within  the  United  States,  and  in  such  case  the  tax  shall  be 
computed  and  paid  in  the  same  manner  and  subject  to  the  same  con- 


SECT.  IV.]  LAWKENCE  V.  ^VAI£DELL.  441 

ditions  as  in  the  case  of  other  persons  who  are  taxable  only  as  to 
income  derived  from  sucli  sources. 

Sec.  261.  That  in  Porto  Kico  and  the  I'hilijjpine  Islands  the 
income  tax  shall  be  levied,  assessed,  collected,  and  paid  in  accord- 
ance with  the  provisions  of  the  revenue  act  of  lUlG  as  amended. 

Returns  shall  be  made  and  taxes  shall  be  paid  under  Title  I  of 
such  act  in  Porto  Pico  or  the  Philippine  Islands,  as  the  case  may  be, 
by  (1)  every  individual  who  is  a  citizen  or  resident  of  VorU)  Kico 
or  the  Pliilippine  Islands,  or  derives  income  from  sources  therein 
.  ,  .  An  iiulividual  who  is  neither  a  citizen  nor  a  resident  of  Porto 
Pico  or  the  Philipi)ine  Islands,  but  derives  income  from  sources 
therein,  shall  be  taxed  in  Porto  Pico  or  the  Philippine  Islands  as 
a  nonresident  alien  individual  .  .  . 

The  local  legislature  has  power  to  amend  or  repeal  the  income  tax 
laws  in  force  in  the  islands. 

Sec.  1400  (n)  of  the  revenue  act  of  1918  provided: 

That  the  following  parts  of  acts  are  hereby  repealed  subject  to 
the  limitations  provided  in  subdivision  (h),  1.  Tiie  following  titles 
of  the  revenue  act  of  19 IG,  Title  I,  called  the  income  tax  .  .  .  ; 
(3)  the  following  titles  of  the  revenue  act  of  1917:  Title  I  (called 
"War  income  tax");  .  .  .  Title  XII  (called  "Income-tax  amend- 
ments"). .  .  (h)  Title  I  of  the  revenue  act  of  1916  as  amended  by 
the  revenue  act  of  1917  shall  remain  in  force  for  the  assessment 
and  collection  of  the  income  tax  of  Porto  Pico  and  the  Philippine 
Islands,  except  as  may  be  otherwise  provided  by  their  respective 
legislatures. 

HuxT,  J.  By  the  statutes  above  cited  Congress  extended  tlie 
provisions  of  the  revenue  law  of  1916  to  the  Philippine  Islands, 
and  authorized  the  assessment  and  levies  to  be  made  by  the  ad- 
ministrative internal-revenue  officers  of  the  Pliilippine  government, 
but  instead  of  requiring  the  taxes  when  collected  to  be  paid  into 
the  Treasury  of  the  General  Government  of  the  United  States, 
directed  that  they  should  accrue  to  the  general  government  of  tlie 
Philippine  Islands.  A  like  policy  obtained  and  still  obtains  as  to 
Porto  Pico.  The  purpose  of  such  legislation  was  to  enable  the 
governments  of  those  islands,  respectively,  to  have  sufficient  revenue 
to  meet  their  needs  and  to  receive  the  money  through  the  most 
direct  channels,  and  not  have  to  await  appropriation  by  Congress. 
The  policy  was  not  new.  For  example,  in  the  island  of  Porto  Rico, 
ever  since  the  institution  of  civil  government  in  May,  1900,  customs 
duties  collected  have  been  turned  over  to  the  insular  treasury  by  the 
collector  of  customs  for  the  island  to  be  expended  as  required  by 
law  for  the  government  and  benefit  of  the  island  "instead  of  being 
paid  into  the  Treasurv  of  the  United  States."  Act  of  Concrress, 
April  12,  1900  (Supplement  R.  S.,  U.  S.,  vol.  2,  p.  112S). 

The  power  of  Congress  in  the  imposition  of  taxes  and  providing 
for  the  collection  thereof  in  the  possessions  of  the  United  States 
is  not  restricted  by  constitutional  provision,  §  f^.  Art.  I,  which  may 
limit  its  general  power  of  taxation  as  to  uniformity  and  apportion- 
ment wlien  legislating  for  the  mainland  or  United   States  pro]">er. 


442  LAWRENCE  V.  WAKDELL.  [CHAP.    VII. 

for  it  acts  in  the  premises  under  the  authority  of  par.  2,  §  3, 
Art.  IV  of  the  Constitution,  which  clothes  Congress  with  power  to 
make  all  needful  rules  and  regulations  respecting  the  territory  or 
other  property  belonging  to  the  United  States.  Binus  v.  United 
States,  19-i  U.  S.  486 ;  Downes  t'.  Bidwell,  182  U.  S.  244. 

When  Congress  enacted  the  revenue  act  of  October  3,  1917,  by 
section  5  it  saw  fit  to  provide  expressly  that  the  provisions  of  the 
title  should  not  extend  to  the  Philippines  or  Porto  Eico,  and  the  local 
legislatures  were  given  power  to  amend,  alter,  modify,  or  repeal  the 
income  tax  laws  in  force  in  the  islands^  respectively.  The  result 
Avas  that  under  the  act  of  1916  the  entire  net  income  of  every  in- 
dividual, a  citizen  or  resident  of  the  United  States,  resident  in  the 
Philippines,  became  taxable  thereunder,  as  subject  to  the  jurisdic- 
tion of  the  Philippines  in  respect  to  tax  matters.  But  Congress, 
acting  doubtless  under  the  after-war  needs,  passed  the  revenue  act 
of  1918,  changed  the  situation,  and  made  the  net  income  of  every 
individual  citizen  of  the  United  States  taxable  no  matter  where  he 
resides.  In  the  place  of  the  taxes  imposed  by  the  act  of  1916  (sub»- 
div.  (a),  sec.  1),  and  by  the  act  of  1917  (sec.  1)  the  net  income  of 
'■'every  individual"  was  subject  to  the  rate  prescribed  (sec.  210); 
and  in  place  of  taxes  imposed  by  subdivision  (h),  section  1  of  the 
act  of  1916,  and  section  2  of  the  act  of  1917,  but  in  addition  to  the 
normal  tax  imposed  by  section  210  of  the  act  the  surtaxes  prescribed 
should  be  collected. 

The  comprehensiveness  of  the  1918  act  is  as  great  as  language 
could  make  it,  for  it  applied  to  the  income  of  every  individual, 
changing  the  rates  and  obviously  imposing  taxes  at  the  new  rates 
where  no  tax  could  have  been  imposed  prior  to  the  1918  act. 

We  are  unable  to  infer  that  by  using  the  words  "  in  lieu  of," 
Congress  meant  to  tax  only  those  incomes  of  individuals  who  had 
been  subject  to  taxation  under  the  two  prior  acts.  It  is  more  reason- 
able to  hold  that  where  the  individual  was  liable  under  the  prior  act 
of  1916,  the  new  act  of  1918  became  the  controlling  standard. 
Where,  by  the  act  of  1917,  he  was  relieved  of  the  increased  rates  of 
that  act,  but  had  been  subject  to  the  1916  act,  he  was  covered  by 
the  provisions  of  the  1918  act,  and  in  the  event  he  was  never  before 
included  he  became  liable  under  the  very  broad  terms  of  the  act  of 
1918.  Section  260,  supra,  of  the  act  of  1918,  also  leads  to  the  con- 
clusions indicated.  The  language  there  used  discriminates,  by  mak- 
ing individuals  who  are  citizens  of  a  possession  of  the  United  States, 
yet  not  otherwise  citizens  of  the  United  States,  and  who  are  not 
residents  of  the  United  States,  subject  to  be  taxed  only  as  to  income 
derived  from  sources  within  the  United  States.  Unless  such  a 
person  has  income  so  derived  he  is  not  subject  to  the  act. 

In  the  repealing  clauses  of  the  act  of  1918,  as  quoted  in  the  state- 
ment of  the  case,  the  act  of  1916,  as  amended  by  the  act  of  1917, 
in  force  in  the  Philippines,  was  continued  in  force,  except  as  might 
be  otherwise  provided  by  the  local  legislature.  As  a  general  statute 
of  tVie  United  States  there  was  clear  repeal  but  as  to  the  Philippines 
the  act  of  191G  was  kept  alive,  as  direct  legislation  by  Congress  with 


SECT.  IV.]  GAVIT   L\  IIIWIN.  443 

respect  to  the  local  afTairs  of  the  island  and  not  as  a  general  statute 
of  the  United  .States. 

A  citizen  of  tlie  United  States  residing  in  the  Philippines  becomes 
subject  to  the  income  tax  law  under  the  act  of  11J18.  By  section 
2G1,  supra,  of  tliat  act,  the  tax  shall  be  levied,  collected  and  paid  in 
accordance  with  the  act  of  liJlG,  as  amended,  returns  to  be  made 
and  taxes  to  be  paid  under  Title  1  of  the  act  by  "every  individual 
who  is  a  citizen  or  resident"  of  the  island,  the  local  legislature  hav- 
ing power  as  already  defined.  The  citizen  of  the  United  States 
residing  in  the  island  is  in  nmch  the  same  position  as  is  a  citizen 
of  a  State  where  tlicre  is  a  State  income  tax.  The  fact  of  residence 
in  the  Philippines  avails  him  no  more  than  would  the  fact  of  resi- 
dence in  a  State. 

Section  222  of  the  act  of  1918  in  providing  for  credits  for  taxes 
makes  the  taxes  computed  under  Part  II  of  the  title  subject  to  a 
credit  (1)  in  the  case  of  a  citizen  of  the  United  States  the  amount 
of  any  income  taxes  paid  during  the  taxable  year  to  any  foreign 
country  upon  income  derived  from  sources  therein,  "or  to  any 
possession  of  tlie  United  States."  It  is  argued  that  a  citizen  of  the 
United  States  resident  of  the  islands  is  not  subject  to  taxation 
under  the  1918  act  because  the  return  of  the  "possession"  is  not 
a  return  under  the  act  of  1916,  though  it  is  a  return  under  a  local 
act.  Section  222  allows  to  one  residing  in  the  Philippines  a  credit 
upon  the  tax  computed  under  Part  II  of  the  1918  act,  but  there  is 
nothing  to  indicate  that  there  is  exemption  to  the  citizens  residing  in 
the  islands.  He  may  have  paid  to  the  island  treasury  such  amounts 
as  are  due,  but  still  bo  liable  to  the  United  States  for  a  sum  in  ex- 
cess of  that  paid  in  the  islands. 

The  regulations  of  tlie  Treasur}'  Department  (Pegs.  45,  arts. 
1131,  1132)  have  been  framed  upon  the  construction  wliich  we  have 
adopted ;  and  as  credit  appears  to  have  been  given  to  plaintiff  for 
the  amount  of  taxes  which  he  had  already  paid  in  the  Philippines, 
•we  think  he  cannot  complain  of  the  judgment  rendered  against  him. 

The  judgment  is  affirmed. 


GAVIT  V.  IIJWIX. 
District  Court  of  the  United  States.     1921. 

[Reported  275  Fed.  643.] 

Cooper,  District  Judge.  By  the  will  of  Anthony  N".  Brady,  de- 
ceased, he  divided  his  estate  into  six  equal  parts,  and  devised  one- 
sixth  of  his  estate  in  trust  to  his  executors,  who  were  thereby  made 
trustees.  The  trustees  were  directed  to  apply  so  much  of  the  in- 
come and  profits  from  such  one-sixth  as  in  their  discretion  they 
thought  necessary  for  the  support  and   maintenance  of  decedent's 


444  GAViT  r.  lEwiN.  [ CHAP.  VII. 

granddaughter,  Marcia  Ann  Gavit,  daughter  of  the  plaintiff  herein, 
and  to  divide  the  remainder  of  the  income  of  such  one-sixth,  nat 
necessary  for  the  support  of  the  granddaughter,  into  two  parts,  one 
of  said  parts  to  be  paid  to  the  plaintitf  during  his  life,  but  not  longer 
than  the  infancy  of  the  daughter,  Marcia  Ann  Gavit,  and  not  longer 
than  her  natural  life,  should  she  die  before  attaining  tlie  age  of  21 
years. 

During  the  tax  years  of  1913,  1914,  and  1915,  the  plaintiff  re- 
ceived certain  sums  of  money  under  the  provisions  of  the  Brady  will, 
upon  which  he  has  been  required  to  pay,  as  normal  tax,  additional 
tax,  and  penalties,  the  sum  of  $21,60-.M6.  He  paid  this  under  pro- 
test, and  appealed  to  the  Commissioner  of  Internal  Revenue,  who 
decided  against  him,  and  the  plaintiff  has  now  brought  this  action 
to  recover  such  amount  of  taxes,  with  interest. 

The  question  before  the  court,  arising  upon  a  demurrer  to  the 
complaint,  is  whether  or  not  the  moneys  so  received  by  the  plaintiff 
under  the  aforesaid  provisions  of  the  Brady  will  are  taxal)le  as  in- 
come, within  the  meaning  of  the  Income  Tax  Act  of  October  3,  1913 
(38  Stat.  114). 

The  plaintiff  contends  that  the  moneys  thus  received  by  him  are 
not  income,  under  the  provisions  of  the  act  of  1913,  especially  in 
view  of  the  provisions  of  subdivision  B  of  such  act,  and  that,  even  if 
they  come  under  the  act  of  1913,  they  are  not  income  within  the 
meaning  of  the  sixteenth  amendment  to  the  Constitution  of  the 
United  States,  and  that  the  statute  is  unconstitutional. 

The  courts  have  held  that  income,  within  the  meaning  of  the  Con- 
stitution and  the  Income  Tax  Act  passed  pursuant  to  the  sixteenth 
amendment,  must  be  taken  in  the  common  understanding  of  the 
term.  Eisner  v.  Macomber,  252  U.  S.  189,  40  Sup.  Ct.  189,  64  L. 
Ed.  521,  9  A,  L.  E.  1570.  Income,  as  laid  down  by  the  United  States 
Supreme  Court,  within  the  purview  of  the  Constitution,  is  defined 
as: 

".  .  .  The  gain  derived  from  capital,  from  labor,  or  from  both 
combined,  provided  it  be  understood  to  include  profits  gained  through 
a  sale  or  conversion  of  capital  assets."  Eisner  v.  Macomber,  252 
U.  S.  189,  citing  Stratton  Ind.  v.  Howbert,  231  U.  S.  399,  415,  and 
Doyle  V.  Mitchell  Bros.  Co.,  247  U.  S.  179,  185. 

In  the  same  case  (Eisner  v.  Macomber)  the  relation  of  capital  to 
income  is  expressed  as  follows : 

"The  fundamental  relation  of  ^capital'  to  ^income'  has  been 
much  discussed  by  the  economists,  the  former  being  likened  to  the 
tree  or  the  land,  the  latter  to  the  fruit  or  the  crop ;  the  former  de- 
picted as  a  reservoir  supplied  from  springs,  the  latter  as  the  outlet 
stream,  to  be  measured  by  its  flow  during  a  period  of  time." 

Since  the  moneys  received  by  plaintiff  were  not  income  from  labor, 
nor  from  labor  and  capital  combined,  nor  from  the  sale  or  conversion 
of  capital  assets,  we  have  only  to  do  with  income  received  from  capi- 
tal. Income,  as  now  considered,  is,  after  the  severance,  separate  and 
apart  from  the  capital ;  it  is  as  separate  and  apart  from  the  capital  as 
the  fruit  from  the  tree,  the  crops  from  the  land  after  severance,  or  the 


SECT.  IV.]  GAVIT  V.  IRWIX.  445 

waters  in  the  outlet  stream  after  passing  out  of  the  reservoir.  It  is 
soinethiug  which  has  grown  out  of  or  issued  from  capital,  leaving  the 
capital  unimpaired  and  intact.  Having  these  considerations  in  mind, 
it  cannot  be  said  that  these  moneys  received  by  the  plaintiff  arose 
from  any  capital  of  his.  So  far  as  appears  from  the  pleadings  in  tiiis 
case,  he  had  no  land,  trees,  or  reservoir  to  produce  crops,  fruit,  or 
outlet  water  —  no  capital  of  any  kind  whatever. 

If  the  Income  Tax  Law  of  l!)i;3,  therefore,  is  intended  only  to 
tax  the  income,  wliich  is  the  fruit  of  the  taxpayer's  labor,  or  the  in- 
come from  the  taxpayer's  capital,  in  which  he  has  a  present  owner- 
ship (or  at  least  a  vested  future  interest,  meantime  receiving  the 
income  or  the  gain  from  the  sale  or  conversion  of  the  taxpayer's 
capital  assets),  then  the  money  received  by  the  plaintiff  is  not  income 
as  to  him,  because  he  has  not  and  never  will  have  the  slightest  owner- 
ship, present  or  future,  vested  or  contingent,  in  the  capital  producing 
this  income.  If  this  is  income,  therefore,  it  is  the  income,  not  of  the 
capital  of  the  plaintiff,  but  of  the  capital  of  a  portion  of  the  Brady 
estate,  which  capital  will  never  be  that  of  the  plaintiff. 

There  is  nothing  in  the  act  of  1!)13  which  taxes  income  which  is 
not  the  income  of  the  citizen  or  the  individual  sought  to  be  taxed. 
The  levy,  assessment,  and  payment  is  upon  the  net  income  of  a 
*' citizen"  Section  A,  subdivision  1.  "Individuals"  are  chargeable 
with  the  normal  and  the  additional  income  tax.  .Section  A,  subdivi- 
sion 2.  The  return  required  by  section  A,  subdivision  2,  is  a  per- 
sonal return.  An  estate  is  not  a  "  citizen  ^'  nor  a  "  person."  There  is 
nothing  in  the  act  of  1013  which  shows  any  intent  to  tax  the 
income  of  estates,  as  distinguished  from  the  income  of  a  citizen 
or  individual  resident  of  the  country.  There  is  in  the  act  no  de- 
finition of  citizen  or  individual  which  makes  either  of  these  terms 
include  estates. 

It  is  true  that  section  A,  subdivision  1,  speaks  of  "  income  arising 
or  accruing  from  all  sources  ...  to  every  citizen"  and  section  A, 
subdivision  2,  used  the  language,  "income  derived  from  any  source 
whatever."  This  must,  however,  be  held  to  mean  moneys  which  are 
essentially  income,  and  which  are  income  received  from  the  lal)or  or 
capital,  or  both,  or  the  sale  or  conversion  of  the  capital  assets,  of  the 
person  sought  to  be  taxed,  and  to  be  limited  by  the  provisions  of  sub- 
division B. 

The  act  of  1913  in  section  II,  subdivision  B,  purports  to  define  the 
income  of  a  taxable  person  liable  to  tax.  There  is  no  suggestion  in 
subdivision  B  of  any  tax  upon  the  income  of  estates,  as  distinguished 
from  the  income  of  individuals.  This  subdivision  B,  in  defining 
what  shall  be  deemed  to  be  income  of  a  "  taxable  person,"  provides 
that  the  net  income  of  a  " taxable  person"  shall  include  "income 
from,  but  not  the  value  of  property  acquired  by  gift,  bequest,  devise 
or  descent."  This  means  that  there  shall  be  included,  within  the 
taxable  income  of  a  person  liable  to  tax,  the  income  which  he  shall 
receive  from  property  acquired  by  gift,  bequest,  devise,  or  descent. 
It  should  be  construed  as  if  the  statute  read : 

"The  income  of  a  taxable  person  sliall  include  the  income  from 


446  GAVIT  r.  IRWIN.  [chap.  VII. 

property  acquired  by  gift,  bequest,  devise  or  descent,  but  not  the 
value  of  che  property  itself." 

The  transfer  of  possession  and  the  beneficial  use  of  property  ac- 
quired by  a  person  by  gift,  bequest,  devise,  or  descent  is  usually  de- 
layed by  reason  of  the  necessity  for  operating  the  legal  machinery 
required  to  execute  the  provisions  of  the  law  of  trusts,  probate,  and 
intestacy.  Ofttimes  the  property  which  the  person  thus  receives  is 
withheld  for  a  period  of  time,  and  he  does  not  get  the  corpus  or 
capital  of  the  property  which  he  receives  by  gift,  bequest,  devise,  or 
descent  until  a  long  time  after  the  right  thereto  is  created.  During 
all  this  suspension  of  absolute  ownership  and  possession  of  the  prop- 
erty thus  acquired,  interest  or  income  accrues.  The  intent  of  sub- 
division B  is  to  tax  to  the  person  the  income  which  accrued  and  is 
received  by  him  from  the  property  acquired  by  gift,  bequest,  devise, 
or  descent,  and  which  property  has  been  withheld  from  him.  There 
is  no  suggestion  in  subdivision  B  that  the  income  of  estates  as  such, 
regardless  of  what  disposition  is  made  of  the  income,  shall  be  taxable, 
and  the  tax  thereon  paid  by  any  person,  either  in  his  individual 
right  or  as  fiduciary. 

The  other  provisions  of  the  act  relating  to  fiduciaries  are  in  entire 
harmony  with  this  construction.  Subdivision  2,  paragraph  D,  re- 
quires the  guardians,  trustees,  etc.,  of  persons  wlio  are  subject  to  an 
income  tax  because  of  the  amount  of  income  received  from  such  prop- 
erty, acquired  by  gift,  bequest,  devise,  or  descent,  to  make  a  return 
of  the  net  income  of  such  persons,  subject  to  this  tax,  for  whom  such 
guardians  or  trustees  act.  Subdivision  2,  paragraph  E,  provides  that, 
where  the  income  of  any  person  subject  to  tax  shall  exceed  $3,000  for 
any  taxable  year,  the  guardian,  trustee,  etc.,  of  such  person  shall  with- 
hold and  deduct  from  the  income  paid  to  such  person  the  amount  of 
the  income  tax  on  such  income  so  paid  to  such  person.  The  last 
provisions  relating  to  fiduciaries  are  machinery  to  safeguard  the 
government's  obtaining  the  income  tax  on  the  income  of  persons 
from  property  which  they  acquire  by  gift,  bequest,  devise,  or  descent, 
which  property  and  the  income  therefrom  is  temporarily  in  posses- 
sion and  custody  of  fiduciaries. 

To  make  these  fiduciary  provisions  and  subdivision  B  applicable, 
and  to  bring  a  person  thereunder,  there  must  be  both  income  of  the 
property  received  by  gift,  bequest,  devise,  or  descent,  and  also  the 
property  or  capital  itself.  Unless  there  is  both,  there  is  no  income 
within  the  meaning  of  these  provisions  of  the  Income  Tax  Law,  and 
no  income  tax  to  be  paid ;  nor  is  there  any  return  to  be  made  by  the 
fiduciaries,  nor  any  tax  to  be  withheld  from  the  moneys  paid  to  the 
beneficiary. 

Applying  this  to  the  case  at  bar,  we  must  find  as  to  the  plaintiff 
both  the  income  from  the  property  acquired  by  gift,  bequest,  devise, 
or  descent,  and  the  property  itself,  within  the  meaning  of  the  Income 
Tax  Law  of  1913.  If  these  moneys  received  by  the  plaintifl^  from  the 
trustees  from  this  one-sixth  portion  of  the  Brady  estate  are  income 
as  to  him,  where  is  the  property  acquired  by  the  plaintiff  from  the 
Brady  estate  —  in  other  words  his  capital,  either  in  present  possession 


SECT.  IV.]  GAVIT  V.  lEWIN,  44T 

or  right  of  future  possession,  from  which  the  income  arose?  Clearly 
there  is  none.  He  never  gets  the  property  which  produces  the  income. 
So  as  to  him  there  is  not  both  the  property  acquired  by  gift,  bequest, 
devise,  or  descent  and  the  income  tiiereof. 

The  learned  district  attorney  recognizes  and  concedes  that  "  in- 
come" must  be  something  separate,  apart,  and  distinct  from 
"capital,"  both  belonging  to  the  plaintilL  He  argues  in  his  brief 
that  the  ii(jlil  to  receive  the  moneys  must,  of  necessity,  be  the  capital 
or  corpus  from  which  the  moneys  received  by  the  plaintiff  accrued. 
This  contention  does  not  carry  conviction.  Heirs  have  a  right  to 
inherit.  That  does  not  make  the  inheritance  income.  So,  too,  an 
instrument  providing  for  the  future  transfer  of  property  would  give 
the  transferee  the  right  to  it,  but  would  not  thereby  make  the  trans- 
ferred property  income. 

Moreover,  there  is  nothing  fixed,  absolute,  or  certain  about  the 
plaintiff's  right  to  receive  any  moneys  in  any  year  under  the  provi- 
sions of  the  will.  If  the  trustees  elect  that  the  whole  amount  of  the 
income  of  tiie  one-sixth  is  necessary  for  the  support  of  the  testator's 
granddaughter  as  she  grows  older  and  as  her  expenses  increase,  the 
plaintiff  gets  nothing.  His  right  is  extinguished.  To  call  such  a 
right  property  or  capital,  or  the  equivalent  thereof,  within  the  pro- 
visions of  the  act  of  1913,  would  be  unreasonable. 

Further  consideration  of  the  character  or  legal  status  of  the 
moneys  received  by  plaintiff  may  be  helpful.  H  the  will  had  pro- 
vided that  the  income  of  this  one-sixth  of  the  Brady  estate,  during 
the  first  year  after  his  death,  should  be  paid  to  the  plaintiff,  and  the 
income  thereafter  appropriated  to  the  support  of  his  granddaughter 
so  far  as  necessary,  and  the  balance  accumulated  for  her  benefit, 
would  any  one  contend  that  the  payment  to  the  plaintiff  in  the  one 
year  was  income  within  the  meaning  of  the  act  of  1913?  If  the  tes- 
tator in  his  will  had  provided  for  such  payment  during  the  first  two 
years  after  his  death,  would  any  one  contend  that  the  moneys  paid 
to  the  plaintiff  during  the  two  years  was  income  within  the  meaning 
of  the  act  of  1913? 

^^'ouId  it  not  be  clear  that  this  was  property  acquired  by  bequest  or 
devise  by  the  plaintiff,  the  value  of  which  is  provided  by  subdivision 
B  of  the  act  of  1913  to  be  not  taxable  as  income?  Does  the  fact  that 
the  plaintiff  received  a  portion  of  the  income  of  this  one-sixth  for 
three  years  under  the  act  of  1913,  and  may  receive  it  longer,  change 
its  character  from  capital  to  income  under  this  act?  Under  no  cir- 
cumstances can  it  last  longer  than  fifteen  years,  the  granddaughter 
being  six  years  of  age.     It  may  cease  immediately. 

From  the  foregoing  it  must  be  determined  that  there  is  no  pro- 
vision of  the  Income  Tax  Law  of  1913  by  which  it  can  belield  that 
the  moneys  received  by  plaintiff  during  these  years  1913,  1914,  and 
1915  are  income  and  taxable.  While  the  moneys  received  by  plain- 
tiff are  income  as  to  the  estate,  they  are  not  income  as  to  the  plaintiff. 
As  to  him,  they  are  the  property  acquired  by  bequest  or  devise,  and 
therefore  not  taxable.  It  was  not  until  1916  that  any  provision  was 
made  in  the  income  tax  act  for  a  tax  upon  the  income  of  estates,  aa 


44S  MILES  V.  SAFE  DEPOSIT  AND  TRUST  CO.         [ciIAP.  VII. 

wellas  a  tax  upou  the  income  of  persons.  By  the  amendment  of  1916 
(Act  Sept.  8,  11)16,  c.  463  [Comp.  St.  §  6336a  et  seq.])  it  was  pro- 
vided for  the  first  time  that  the  income  of  estates  or  of  any  kind  of 
property  held  in  trust  should  be  taxed  to  the  estates.  Merchants' 
Loan  &  Trust  Co.  v.  Smietanka,  255  U.  S.  509,  41  Sup.  Ct.  386. 
The  Congress,  while  making  this  amendment,  also  eliminated  from 
the  Income  Tax  Law  that  provision  of  subdivision  B  in  the  act  of 
1913  which  provided  that  an  income  tax  should  be  levied  upon  the 
income  received  by  persons  from  property  acquired  by  gift,  bequest, 
devise,  or  descent,  but  not  upon  the  property  itself. 

It  may  then  be  presumed,  in  the  light  of  this  amendment,  that  the 
legislative  intent  in  1916  was  to  cover  the  defect,  if  it  may  be  termed 
such,  and  to  change  the  statute  to  include  cases  similar  to  the  one  in 
question  not  before  included.  Its  insertion  indicates  that  Congress 
at  least  was  doubtful  whether  the  previous  act  included  income  of 
estates.  United  States  v.  Field,  255  U.  S.  257,  41  Sup.  Ct.  256; 
United  States  v.  Bashaw,  50  Fed.  749,  754,  1  C.  C.  A.  653. 

In  view  of  this  holding  that  the  moneys  received  by  the  plaintiff 
are  not  income  within  the  meaning  of  the  act  of  1913,  it  is  not  neces- 
sary to  pass  upon  its  constitutionality. 

The  demurrer  is  overruled. 


MILES  V.  SAFE  DEPOSIT  AND  TEUST  CO. 

SUPKEME  COUET  OF  THE  UNITED  STATES.      1922. 
[Reported  I  Bull.  Int.  Rev.  25,  352.] 

Pitney,  J.  Defendant  in  error,  a  corporation  organized  under 
the  laws  of  Maryland  and  authorized  to  act  as  guardian,  was  on 
January  30,  1919,  appointed  by  the  orphans'  court  guardian  of  Frank 
R.  Brown,  an  infant,  whose  father  had  died  intestate  about  a  year 
before.  The  son  as  next  of  kin  became  entitled  to  35  shares  of  the 
stock  of  the  Hartford  Fire  Insurance  Company,  and  they  were  trans- 
ferred to  defendant  in  error  as  such  guardian,  and  still  are  held  by 
it  in  that  capacity.  At  that  time  the  capital  stock  of  the  insurance 
company  issued  and  outstanding  consisted  of  20,000  shares  of  the  par 
value  of  $100  each.  Later  in  the  year  the  company,  under  statutory 
authority,  increased  its  capital  stock  to  40,000  shares  of  the  same 
par  value.  The  resolution  of  the  stockholders  sanctioning  the  in- 
crease provided  that  the  right  to  subscribe  to  the  new  issue  should  be 
offered  to  the  stockholders  at  the  price  of  $150  per  share,  in  the  pro- 
portion of  one  share  of  new  stock  to  each  share  of  stock  held  by  them  ; 
subscriptions  to  be  payable  in  installments  and  the  directors  to  have 
power  to  dispose  of  shares  not  so  subscribed  and  paid  for  in  such 
manner  as  they  might  determine  to  be  for  the  best  interests  of  the 
companv.  In  July,  1919,  defendant  in  error,  pursuant  to  an  order 
of  the  orphans'  court,  sold  the  subscription  right  to  35  shares  owned 
by  its  ward  for  $12,546.80,  equivalent  to  $358.48  per  share.     The 


I 


SECT.  IV.]         MILES   l\  SAFE  DEPOSIT  AND  TRUST  CO.  449 

Commissioner  of  Internal  Eevenu6,  holding  that  this  entire  amount 
was  income  for  the  year,  under  the  provisions  of  the  Act  approved 
February  24:,  191 'J  (ch.  18,  40  Stat.  lUo7),  assessed  and  plaintiif  in 
error  collected  a  tax  amounting  to  $1,130.77  by  reason  of  it.  De- 
fendant in  error,  having  paid  this  uixler  protest  and  unavailingly 
appealed  to  the  Commissioner,  claiming  that  none  of  the  amount  .so 
received  was  income  within  the  meaning  either  of  the  Act  or  of  the 
sixteenth  amendment,  brought  this  action  against  the  collector  to 
recover  the  entire  amount  of  tax  so  assessed  and  paid.  The  case  was 
tried  before  the  District  Court  without  a  jury  on  stipulated  facts 
and  evidence.  Plaintilf's  extreme  contention  that  the  subscription 
right  to  new  stock  and  also  the  proceeds  of  the  sale  of  the  right  were 
wholly  capital  and  not  in  any  part  subject  to  be  taxed  as  income,  was 
overruled  upon  the  authority  of  Merchants'  Loan  &  Trust  Company 
V.  Smietanka  (255  U.  S.  509),  then  recently  decided.  The  trial 
court,  in  the  second  place,  held  that,  of  the  proceeds  of  the  sale  of  the 
subscription  rights,  so  much  only  as  represented-  a  realized  profit 
over  and  above  the  cost  to  plaintiif  of  what  was  sold  was  taxable  as 
income.  In  order  to  compute  the  amount  of  the  profit,  the  court 
commenced  with  the  value  of  the  old  shares  prior  to  authorization 
of  the  stock  increase,  which  upon  the  basis  of  evidence  contained  in 
the  stipulation  was  taken  to  be  what  they  were  assessed  at  by  the 
United  States  for  purposes  of  the  estate  tax  at  the  death  of  the  ward's 
father,  viz,  $710  per  share,  and  added  the  $150  necessary  to  be  paid 
by  a  stockholder  or  his  assignee  in  order  to  obtain  a  share  of  the  new 
stock,  making  the  cost  of  two  shares  (one  old  and  one  new)  $860 
and  half  of  this  the  cost  of  one  share. 

The  sale  of  the  subscription  rights  at  $358.48,  the  purchaser  to 
pay  the  issuing  company  $150  per  share,  was  treated  as  equivalent 
to  a  sale  of  the  fully-paid  shares  at  $508.48  each,  or  $78.48  in  excess 
of  the  $430  which  represented  their  cost  to  plaintitf ;  and  this  dif- 
ference multiplied  by  35,  the  number  of  shares  or  rights  sold,  yielded 
$2,746.80  as  the  gain  realized  out  of  the  entire  transaction.  Upon 
this  the  court  held  plaintiff  to  have  been  properly  taxable,  and  upon 
nothing  more;  no  income  tax  being  assessable  with  respect  to  the  35 
shares  still  retained,  because  although  they  were  considered  worth 
more,  ex-rights,  than  the  $430  per  share  found  to  be  their  cost,  the 
difference  could  not  be  regarded  as  a  taxable  profit  unless  or  until 
realized  by  actual  sale  (273  Fed.  Eep.  822).  To  review  the  final 
judgment  entered  pursuant  to  the  fiiulings  and  opinion,  which  sus- 
tained only  in  part  plaintiff's  demand  for  a  refund  of  the  tax  paid, 
the  collector  of  internal  reveniie  prosecuted  a  direct  writ  of  error 
from  this  court  under  section  238,  Judicial  Code,  because  of  the  con- 
stitutional questions  involved. 

There  is  but  one  assignment  of  error,  based  upon  a  single  excep- 
tion, which  denied  that  plaintiff  was  entitled  to  recover  anything 
whatever;  hence  the  correctness  of  the  particular  recovery  awarded 
is  not  in  form  raised ;  but  the  trial  judge,  having  the  complete  facts 
l^efore  him,  almost  of  necessity  passed  upon  them  in  their  entirety 
in  order  to  determine,  according  to  truth  and  substance,  how  much 


450  MILES  V.  SAFE  DEPOSIT  AND  TRUST  CO.  [CHAP.  VII. 

of  what  plaintiff  received  was,  and  how  much  was  not,  income  in  the 
proper  sense;  as  is  proper  in  a  case  involving  the  application  of  the 
sixteenth  amendment  (Eisner  v.  Macomber,  252  U.  S.  189,  206; 
United  Stiites  v.  Phellis,  Nov-ember  21,  1921,  257  U.  S. — ),  and  in. 
order  to  review  the  judgment,  it  will  be  proper  for  us  to  analyze  the 
reasoning  upon  which  it  was  based. 

It  is  not  in  dispute  that  the  Hartford  Fire  Insurance  Company  is 
a  corporation  of  the  State  of  Connecticut  and  that  the  stock  increase 
in  question  was  made  under  authority  of  certain  acts  of  the  legisla- 
ture and  certain  resolutions  of  the  stockholders,  by  which  the  right  to 
subscribe  to  the  new  issue  was  offered  to  existing  stockholders  upon 
the  terms  mentioned.  It  is  evident,  we  think,  that  such  a  distribu- 
tion in  and  of  itself  constituted  no  division  of  any  part  of  the  accu- 
mulated profits  or  surplus  of  the  company,  or  even  of  its  capital ;  it 
was  in  effect  an  opportunity  given  to  stockholders  to  share  in  con- 
tributing additional  capital,  not  to  participate  in  distribution.  It 
was  a  recognition  by  the  company  that  the  condition  of  its  affairs 
warranted  an  increase  of  its  capital  stock  to  double  the  par  value 
of  that  already  outstanding,  and  that  the  new  stock  would  have  a 
value  to  the  recipients  in  excess  of  $150  per  share;  a  determination 
that  it  should  be  issued  pro  rata  to  the  existing  stockliolders,  or  so 
many  of  them  as  would  pay  that  price.  This  privilege  of  itself  was 
not  a  fruit  of  stock  ownership  in  the  nature  of  a  profit;  nor  was  it 
a  division  of  any  part  of  the  assets  of  the  company. 

The  right  to  subscribe  to  the  new  stock  was  but  a  right  to  par- 
ticipate, in  preference  to  strangers  and  on  equal  terms  with  other 
existing  stockholders,  in  the  privilege  of  contributing  new  capital 
called  for  by  the  corporation  —  an  equity  that  inheres  in  stock 
ownership  under  such  circumstances  as  a  quality  inseparable  from 
the  capital  interest  represented  by  the  old  stock,  recognized  so  uni- 
versally as  to  have  become  axiomatic  in  American  corporation  law. 
Gray  v.  Portland  Bank,  3  Mass.  364;  Atkyns  v.  Albree,  12  Allen, 
359,  361;  Jones  v.  Morrison,  31  Minn.  140,  152-153;  Eidman  v. 
Bowman,  58  111.  444,  447 ;  TTumboldt  Driving  Park  Association  v. 
Stevens,  34  Neb.  528,  534;  Electric  Co.  v.  Electric  Co.,  200  Pa.  516, 
520-523,  526;  Wall  v.  Utah  Copper  Co.,  70  N.  J.  Eq.  17,  28,  et  seq.; 
Stokes  V.  Continental  Trust  Co.,  186  N".  Y.  285.  Evidently  this  in- 
herent equity  was  recognized  in  the  statute  and  the  resolution  under 
which  the  new  stock  here  in  question  was  offered  and  issued. 

The  stockholder's  right  to  take  his  part  of  the  new  shares,  there- 
fore—  assuming  their  intrinsic  value  to  have  exceeded  the  issuing 
price  —  was  essentially  analogous  to  a  stock  dividend.  So  far  as  the 
issuing  price  was  concerned,  payment  of  this  was  a  condition  pre- 
cedent to  participation,  coupled  with  an  opportunity  to  increase  his 
capital  investment.  In  either  aspect,  or  both,  the  subscription  right 
of  itself  constituted  no  gain,  profit,  or  income  taxable  without  appor- 
tionment under  the  sixteenth  amendment,  Eisner  v.  Macomber,  252 
U.  S.  189,  is  conclusive  to  this  effect. 

But  in  that  case  it  was  recoqrnized  (p.  212)  that  a  gain  through 
sale  of  dividend  stock  at  a  profit  was  taxable  as  income,  the  same  as 


SECT.  IV.]    MILES  V.   SAFE  DEPOSIT  AND  TRUST  CO.  451 

a  gain  derived  through  sale  of  some  of  the  original  shares  would 
be.  In  that  as  in  otlier  recent  cases  this  court  has  interpreted  "  in- 
come" as  including  gains  and  profits  derived  through  sale  or  con- 
version of  capital  assets,  whether  done  by  a  dealer  or  trader,  or 
casually  by  a  nontrader,  as  by  a  trustee  in  the  course  of  changing 
investments.  Merchants'  Loan  &  Trust  Company  v.  Smietanka, 
255  U.  S.  509,  517-5v^0. 

Hence  the  District  Court  rightly  held  defendant  in  error  liable 
to  income  tax  as  to  so  much  of  the  proceeds  of  sale  of  the  sub- 
scription rights  as  represented  a  realized  profit  over  and  above  the 
cost  to  it  of  what  was  sold.  How  the  gain  should  be  computed  is  a 
matter  of  some  contention  by  the  Government  in  this  court;  but  it 
admits  of  little  doubt.  To  treat  the  stockholder's  right  to  the  new 
shares  as  something  new  and  independent  of  the  old,  and  as  if  it 
actually  cost  notliing,  leaving  the  entire  proceeds  of  sale  as  gain, 
would  ignore  the  essence  of  tlie  matter,  and  the  suggestion  can  not 
be  accei)tod.  The  District  Court  proceeded  correctly  in  treating  the 
subscription  rights  as  an  increase  inseparable  from  the  old  shares, 
not  in  the  way  of  income  but  as  capital;  in  treating  the  new  shares 
if  and  when  issued  as  indistinguishable  legally  and  in  the  market 
sense  from  the  old;  and  in  regarding  the  sale  of  the  rights  as  a  sale 
of  a  portion  of  a  capital  interest  that  included  the  old  shares.  What 
would  have  happened  had  defendant  in  error  decided  to  accept  the 
new  shares  and  pay  the  issuing  price  instead  of  selling  tlie  rights  is 
of  no  consequence;  in  that  event  there  would  have  boon  no  realized 
profit,  hence  no  taxable  income.  What  resulted  or  might  have  re- 
sulted to  defendant  in  error's  retained  interest  in  the  company,  de- 
pending upon  whether  the  purchaser  exercised  his  right  to  subscribe 
or  allowed  it  to  lapse,  or  whether  in  the  latter  event  the  stock  was 
sold  by  the  directors,  is  of  speculative  interest  only.  Defendant  in 
error  resorted  to  the  market  for  the  sale  of  a  part  of  its  capital  in- 
terest, concededly  sold  at  an  advance  over  cost,  and  what  the  profit 
actually  was  is  the  sole  concern  here ;  not  whether  it  might  have  been 
move  or  less,  nor  whether  the  purchaser  disposed  of  the  stock  to 
advantage. 

That  a  comparison  of  the  cost  at  acquisition  and  the  soiling  price 
is  proper  under  section  202(a)  of  the  Act  (40  Stat.  1069),  where,  as 
here,  property  was  acquired  and  sold  within  the  same  taxing  year, 
we  understand  to  be  conceded.  Under  the  stipulation,  the  court 
below  was  warranted  in  finding  $710  per  share  to  have  been  the  fair 
market  value  of  the  old  stock  when  turned  over  to  the  guardian, 
and  treating  this  as  its  cost  to  the  trust.  Tt  was  proper  to  add  to 
this  the  $150  required  to  be  paid  to  the  company  and  treat  the  total 
as  the  cost  to  plaintiff  of  each  two  shares,  one  of  which  was  to  pass 
to  the  purchaser.  This  in  essence  is  the  method  adopted  by  the 
Treasury  Department  in  the  case  of  a  sale  of  dividend  stock,  in 
Regulations  45,  1920  edition,  article  1547,  which  reads: 

Art.  1.^47.  Snlr  of  xfnrl-  rcroivpd  ns  dividpnJ.  —  Stock  in  a  cor- 
poration received  as  a  dividend  does  not  constitute  taxable  income  to 


452  MASSE Y  V.  LEDERER.  [cHAP.   VII, 

a  stockholder  in  such  corporation,  but  any  profit  derived  by  the 
stockholder  from  the  sale  of  such  stock  is  taxable  income  to  him. 
[Following  Eisner  v.  Macomber,  supra.]  For  the  purpose  of  ascertain- 
ing the  gain  or  loss  derived  from  the  sale  of  such  stock,  or  from  the 
sale  of  the  stock  with  respect  to  which  it  is  issued,  the  cost  (used  to  in- 
clude also,  where  required,  the  fair  market  value  as  of  March  1,  1913) 
of  both  the  old  and  new  shares  is  to  be  determined  in  accordance  with 
the  following  rules : 

(1)  Where  the  stock  issued  as  a  dividend  is  all  of  substantially  the 
same  character  or  preference  as  the  stock  upon  which  the  stock  divi- 
dend is  paid,  the  cost  of  each  share  of  both  the  old  and  new  stock 
will  be  the  quotient  of  the  cost,  or  fair  market  value  as  of  March  1, 
1913,  if  acquired  prior  to  that  date,  of  the  old  shares  of  stock  di- 
vided by  the  total  number  of  the  old  and  new  shares.  .  .  . 

That  the  averaging  of  cost  might  present  more  administrative 
diflficulty  in  a  case  more  complicated  than  the  present,  as  where  the 
old  shares  were  acquired  at  different  times,  is  not  a  sufficient  ground 
for  denying  the  soundness  of  the  method  itself. 

Various  suggestions,  more  or  less  ingenious,  as  to  how  the  profit 
ought  to  be  computed,  made  by  counsel  for  defendant  in  error  and 
by  an  amicus  curiae,  have  been  examined  and  found  faulty  for 
reasons  unnecessary  to  be  mentioned.  Upon  the  whole,  we  are  satis- 
fied that  the  method  adopted  by  the  District  Court  led  to  a  correct 
result. 

Judgment  affirmed. 


MASSEY  V.  LEDEREE. 
District  Court  of  the  United  States.     1921. 

[Reported  277  Fed.  123.] 

THOMPSO^^  District  Judge.  This  is  a  suit  brought  against  the 
defendant,  as  collector  of  internal  revenue  for  the  First  District  of 
Pennsylvania,  to  recover  the  sum  of  $31.31,  being  the  amount  of 
additional  income  tax  alleged  to  have  been  unlawfully  assessed 
against  the  plaintiff  for  the  year  1917  under  Eevenue  Acts  Sept. 
8,  1916,  and  Oct.  3,  1917  (Comp.  St.  1918,  6336^a  et  seq.),  and 
paid  under  protest  to  the  defendant.     The  facts  are  as  follows : 

In  February,  1918,  the  plaintiff  filed  with  the  defendant  a  return 
of  his  taxable  income  for  the  year  1917.  Of  his  gross  income,  the 
sum  of  $8,880  was  received  as  interest  on  bonds  of  certain  corpo- 
rations containing  covenants,  varying  in  form,  but  to  the  same  efPect, 
agreeing  to  pay  to  the  bondholder  interest  at  the  prescribed  rate 
without  deduction  of  taxes  imposed  under  any  law  of  the  United 
States.  The  normal  tax  of  2  per  cent  upon  the  income  thus  derived 
was  $177.60,  which  was  accordingly  so  assessed  by  the  Commissioner 
of  Internal  Eevenue,  and  withheld  and  paid  under  the  provisions  of 
title  12,  §  1205,  subd.  (c),  of  the  Eevenue  Act  of  October  3,  1917, 


SECT.  IV.]  aiASSEY  V.  LEDEREK.  453 

amending  subdivision  (c)  of  section  9  of  the  Revenue  Act  of  Septem- 
ber 8,  1916  (Conip.  St.  1918,  jj  6:3361),  by  tlie  corporate  obligors  of 
said  bonds.  In  September,  1919,  the  plaiiililt'  was  notified  by  the 
Commissioner  of  internal  Kevenue  that,  upon  an  ollice  audit  of  his 
income  tax  returns  for  1917,  the  said  amount  of  $  ITT. 60  payable 
by  the  several  corporations  under  the  tax-free  covenants  of  the  said 
bonds  was  "  in  the  nature  of  additional  income  to  bondholder,"  and 
was  subject  under  the  Revenue  Acts  of  1916  and  1917  to  additional 
taxes  of  '-^LSl.  Taxes  to  that  amount  were  accordingly  assessed  and 
paid  by  the  plaintiff  under  protest.  A  claim  for  refund  having  been 
duly  made  and  rejected  by  the  Commissioner  of  Internal  Revenue, 
the  instant  suit  was  brought. 

The  question  involved  is  whether  the  sum  of  $177.60,  represent- 
ing the  aggregate  of  the  normal  2  per  centum  tax,  withheld  by  the 
corporate  obligors  and  by  them  respectively  paid  to  the  defendant, 
constitutes  an  increment  of  taxable  income  which  should  have  been 
included  in  the  plaintiff's  return  as  part  of  his  gross  income  for  the 
year  1917.  There  is  no  dispute  in  the  case  that  the  taxes  assessed 
upon  the  amount  in  question  were  assessed  under  the  applicable  pro- 
visions of  the  acts  of  1916  and  1917  as  to  percentage. 

Title  12,  §  1200,  of  the  Revenue  Act  of  1917  (Comp.  St.  1918, 
§  6336b),  defining  the  net  income  of  taxable  persons  provides: 

"  (a)  That,  subject  only  to  such  exemptions  and  deductions  as  are 
hereinafter  allowed,  the  net  income  of  a  taxable  person  shall  include 
gains,  profits,  and  income,  derived  from  .  .  .  interest,  rent,  divi- 
dends, securities,  ...  or  gains  or  profits  and  income  derived  from 
any  source  whatever." 

The  situation  may  be  stated  as  follows:  The  plaintiff  was  the 
holder  of  corporate  obligations  by  the  terms  of  which  the  obligors, 
respectively,  contracted  to  pay  interest  annually  at  a  certain  rate 
upon  the  principal  debt.  They  contracted  in  addition  that  the 
amount  paid  should  be  without  deduction  for  taxes  due  the  United 
States.  It  goes  without  saying  that  this  covenant  included  taxes 
otherwise  payable  by  the  individual  upon  the  principal  or  interest 
received. 

[1]  Under  the  statutes,  interest  received  by  the  bondholder  is 
made  subicct  to  an  income  tax  at  varying  rates,  and  title  12,  §  1205, 
subd.  (c).  of  the  Revenue  Act  of  1917,  requires  that  the  normal  tax 
shall  be  withheld  bv  corporate  obligors  where  the  obligation  contains 
a  tax  free  covenant  or  contract.  In  such  case  the  tax  is  imposed 
upon  the  individual  owning  the  obligation,  but  instead  of  beinq 
paid  by  him,  and  recoverable  by  him  from  the  corporate  obligor, 
Congress,  in  order  to  prevent  multiplicity  of  collections  and  obtain 
direct  payment,  has  providorl  that  the  tax  shall  be  paid  to  the  govern- 
ment by  the  corporation,  which  has  oliligated  itself  to  pay  the  tax 
for  the  bonrlholfler.  The  money  pair!  bv  the  corporate  obligor  pay? 
the  debt  of  the  individual  owner  to  the  United  States,  and  not  a  debt 
of  the  obliijor  to  the  United  States:  it  being  under  its  contract  ob- 


454  MASSE Y   V.   LEDERES.  [CHAP.   VII. 

ligated  not  only  to  the  bondowner,  but  by  statute  required  to  pay 
directly  to  the  government  and  not  to  the  owner.  It  pays  under  the 
statute  because  of  its  contract  with  the  owner,  and  not  because  of 
any  tax  assessed  against  it.  By  assuming  to  pay  the  interest  free  of 
taxes,  when  the  interest  accruing  to  the  bundhohler  is  made  subject 
to  taxes  and  it  pays  tliose  taxes  to  the  government  for  the  individual, 
the  same  situation  is  created  as  when  a  tenant  under  a  lease  cov- 
enants to  pay  the  taxes  upon  real  estate.  The  rental  of  the  leased 
premises  is  thereby  increased  by  the  amount  of  the  taxes,  and  the 
total  becomes  income  to  the  lessor,  subject  under  the  revenue  acts 
to  deduction,  but  nevertheless  income  equally  with  the  rent  named 
in  the  lease. 

The  tax-free  covenant  in  the  bonds  is  equivalent  to  an  agree- 
ment of  the  obligors  to  pay  to  the  owners  the  agreed  rate  of  in- 
terest plus  the  taxes,  and  it  is  immaterial  whether  the  taxes  are 
paid  by  the  owners  of  the  bonds  to  the  government  and  the  amount 
thereof  paid  by  the  obligors  to  the  owners,  or  whether  under  the 
covenimt  and  the  statute  the  taxes  are  paid  direct  to  the  government 
by  the  obligors.  This  conclusion  is  sustained  by  the  reasoning  in 
the  case  of  Houston  Belt  &  Terminal  Eailway  Co.  v.  United  States, 
250  Fed.  1,  163  C.  C.  A.  173;  Blalock  v.  Georgia  Railway  &  Electric 
Co.,  246  Fed.  387,  158  C.  C.  A.  451;  and  Eensselaer  &  Saratoga 
Eailroad  Co.  v.  Irwin  (D.  C),  239  Fed.  739,  affirmed  in  249  Fed. 
726,  161  C.  C.  A.  636. 

[2]  The  taxes  paid  for  the  plaintiff  by  the  corporation  come 
within  the  definition  of  income  as  "  gains,  profit,  and  income  de- 
rived from  any  source  whatever,"  in  the  act  of  1917. 

[3]  The  contention  of  counsel  for  the  plaintiff  is  that  the  duty 
imposed  upon  corporate  obligors  by  the  act  of  1917,  where  their  obli- 
gations contain  tax-free  covenants,  constitute  in  effect  an  imposition 
of  the  tax  directly  upon  the  corporation,  and  that  the  argument  is 
strengthened  because  the  corporation  is  not  allowed  to  deduct  taxes 
so  paid  under  tax-free  covenants  from  its  gross  income,  while  de- 
ducting certain  portions  of  the  interest  paid  upon  its  obligations.  I 
perceive  nothing  in  this  argument  to  indicate  that  the  tax  is  laid 
upon  the  corporation  rather  than  upon  the  individual.  It  is  the 
normal  tax  of  2  per  cent,  upon  the  individual  which  the  corporation 
is  obliged  to  withhold. 

The  argument  that  Congress  intended  to  lay  the  tax  on  the  corpo- 
ration, because  it  did  not  permit  the  tax  so  paid  to  be  the  subject  of 
a  deduction,  has  little  weight,  when  wc  find  that  Congress  also  did 
not  allow  corporations  a  deduction  for  all  of  the  interest  paid  by 
them,  but  only  for  interest  upon  the  amount  of  their  indebtedness, 
not  in  excess  of  their  paid-up  capital  stock,  or,  if  none,  the  amount 
of  capital  employed  plus  one-half  of  the  interest-bearing  indebted- 
ness then  outstanding.  The  net  income  upon  which  taxes  are  pay- 
able is  what  remains  out  of  gross  income  after  deduction  of  what  is 
permitted  to  be  deducted  by  law,  and  we  cannot  draw  the  broad  con- 
clusion that  Congress  intended  the  2  per  cent  normal  tax  imposed  on 
the  individual  to  be  construed  as  a  tax  not  upon  him,  but  upon  the 


SECT.  IV.]  UNITED  STATES   r.   VANDEEBILT.  455 

corporate  oljligor  because  of  the  denial  of  the  right  to  deduct  such 
taxes  so  paid  Iroin  the  gross  iueoiiie  of  liic  obligor.  Travlor  Kiigi- 
neering  t\:  Manufacturing  Co.  v.  Lcderer  (1).  C),  2(i(j  Fcd."^58;i ;  First 
National  Bank  of  Jackson  i-.  McNeel,  238  Fed.  55<J,  Ifjl  C.  C.  A. 
495. 

The  conclusion  is  that  the  plaintiiF  is  not  entitled  to  recover,  and 
judgment  will  be  entered  for  the  defendant. 


UNITED  STATES  v.  VANDEKiilLT. 

District  Court  of  the  United  States.     1921. 
[Reported  275  Fed.  10'.).] 

The  cases  arise  upon  the  demurrers  to  complaints  at  law  to  re- 
cover the  income  taxes  upon  certain  legacies  left  the  defendants 
under  the  will  of  Alfred  CJ.  Vanderbilt,  who  died  in  1915.  The 
will  disposed  of  a  large  estate,  and  set  up  various  independent  trusts 
of  indelinite  duration.  The  only  parts  relevant  to  these  cases  are  the 
eleventh  and  sixteenth  clauses,  which  read  as  follows: 

"Eleventh.  I  give  and  bequeath  to  my  brother  Reginald  C.  \'an- 
derbilt  five  hundred  thousand  dollars  (500,000)  ;  to  my  uncle, 
F'rederick  W.  Vanderbilt,  two  hundred  thousand  dollars  (200,000); 
to  Frederick  M.  Davies  five  hundred  thousand  dollars  (500,000)  ;  to 
Henry  B.  Anderson  two  hundred  thousand  dollars  (200,000)  ;  to 
Frederick  L.  Merriam  two  hundred  and  fifty  thousand  dollars  (250,- 
000)  ;  to  Charles  E.  Crocker  ten  tiiousand  "dollars  (10,000),  and  to 
Howard  Lockwood  one  thousand  dollars  (1,000)." 

"Sixteenth.  1  nominate  and  api)oint  my  brother,  Reginald  C. 
Vanderbilt,  my  uncle,  Frederick  W.  Vanderbilt,  Henry  B.  Anderson, 
Frederick  M.  Davies,  and  Frederick  L.  Merriam  executors  of  this 
my  will  and  trustee  of  the  several  trusts  created  by  this  my  will. 

"  I  direct  that  no  bond  shall  be  required  in  any  state  or  country 
to  qualify  my  said  executors  to  act  as  such  or  as  trustees  hereunder. 

"The  betjuests  herein  made  to  my  said  executors  are  in  lieu  of  all 
compensation  or  commissions  to  which  they  would  otherwise  be  en- 
titled as  executors  or  trustees." 

The  defendants,  so  named  as  executors  and  trustees,  qualified,  and 
have  administered  and  are  now  administering  the  estate.  The  ques- 
tion is  whether  the  legacies  so  given  are  exempt  as  "  bequests,"  or 
liable  to  the  income  tax  as  "compensation  for  personal  services.'* 

Learned  Hand,  Dist.  J.  (after  stating  the  facts  as  above). 
There  seems  to  me  no  question  whatever  that  these  legacies,  in  part, 
anyway,  are  "  compensation  for  personal  services.''  When  the  testa- 
tor provided  that  they  should  be  "in  lieu  of  all  compensation  or 
commissions  to  which  they  would  otherwise  be  entitled  as  executors 
and  trustees,"  he  could  only  have  meant  to  substitute  the  legacies 
in  the  place  of  their  statutory  compensation.     Tf  a  substitute,  the 


456  UXITED  STATES   V.   VANDEKBILT.  [CIIAP.  VII. 

legacies  must  themselves  have  been  compensation,  and  since  the 
commissions  would  certainly  have  been  for  ''  personal  services,"  the 
substitute  itself  was  the  same.  It  is  true  that  the  form  of  the  compen- 
sation is  a  "  bequest,"  and  a  "  bequest "  is  exempt ;  hence  there  is  a 
verbal  contradiction  between  one  part  of  the  statute  and  the  other. 
Yet  I  cannot  doubt  that  all  bequests  are  not  exempt.  Suppose,  for 
instance,  that  a  man  agreed  to  leave  another  a  legacy  if  he  would 
take  care  of  him  while  he  lived.  The  legacy  would  be  a  "bequest"; 
but  can  any  one  suppose  that  it  Avould  not  be  "  compensation  for  per- 
sonal services"  which  would  be  taxable? 

The  defendants  argue  that  such  legacies  are  payable,  though  the 
executor  do  not  complete  his  services.  That  is  true.  The  English 
rule  was  that  a  legacy  to  an  executor  was  presumably  virtute  officii 
and  in  recompense  for  his  services,  and  he  must  assent  to  his  appoint- 
ment. Lewis  V.  Matthews,  L.  R.  8  Eq.  277.  Yet  very  little  was 
necessary,  much  less  than  formal  qualification.  Harrison  v.  Rowley, 
4  Ves.  212.  Indeed,  in  Brydges  r.  Wotten,  1  Yes.  &  Beam.  134,  trus- 
tees were  allowed  their  legacies,  though  they  had  done  nothing,  prob- 
ably because  the  legacies  were  payable  before  the  trustees  could 
qualify.  If  so,  the  rule  does  not  truly  apply  to  trustees.  In  America, 
where  executors  generally  receive  statutory  commissions,  such  be- 
quests have  been  spoken  of  as  compensation  which  must  be  earned. 
Matter  of  Tilden,  44  Hun  (X.  Y.),  4-11;  Renshaw  v.  Williams,  75 
Md.  498,  23  Alt.  905.  In  some  cases  the  language  of  the  will  ap- 
parently indicated  as  much  (Harper's  Appeal,  111  Pa.  243,  2  Atl. 
861),  or  at  least  admitted  of  that  interpretation  (Richardson  v. 
Richardson,  145  App.  Div.  540,  129  N.  Y.  Supp.  941).  Morris  v. 
Kent,  2  Edw.  Ch.  (N.  Y.)  175,  much  relied  on  by  the  defendants, 
decides  nothing  to  the  point,  though  the  Vice  Chancellor  in  his 
opinion  quotes  obiter  the  English  rule  that  any  indication  of  an 
assent  to  qualify  is  enough. 

It  seems  to  me  to  make  no  difference  whether  such  bequests  be  re- 
garded as  payable  merely  on  condition  of  qualification,  or  only  after 
the  services  are  rendered,  I  assume  the  first  to  be  the  correct  rule, 
and  certainly  in  the  cases  at  bar  the  legacies  were  all  payable  long 
before  the  services  could  be  completed,  because  there  were  trusts  of 
indefinite  duration,  which  might  extend  30  3'ears  or  more.  The  leg- 
acies were  given  with  the  chance  that  the  executors  and  trustees 
might  not  complete  their  services.  I  regard  the  point,  however,  as 
immaterial  because  the  bequests  are  in  either  case  equally  "  compen- 
sation for  personal  services,"  Suppose  a  master  pays  his  servant  in 
advance,  trusting  that  he  will  live  to  complete.  Is  the  hire  not  a 
"  compensation  for  personal  services "  ?  It  is  prospective  compen- 
sation, indeed :  but  none  the  less  it  is  not  gratuitous,  it  is  given  to 
procure  and  to  pay  for  the  services.  At  least,  how  can  it  be  said 
that  it  is  not  compensation,  if  the  servant  enters  and  completes  his 
employment? 

Therefore  T  attach  no  importance  to  the  point  of  which  so  much  is 
marie,  that  the  executor  becomes  entitled  to  his  legacies  on  express- 
ing his  assent.    More  important  is  the  opposite  side  of  the  same  rule. 


SECT.  IV.]  JACKSON  V.  smip:taxka.  407 

that  without  suth  assent  he  does  iKjt  hecoiiie  entitled.  Tliis  rule  is 
not  because  he  gets  the  he(|uest  co  nomine;  it  nmiies  no  dill'erenee 
that  he  is  named  in  the  will.  Moreover,  if  the  theory  were  that  the  be- 
quest is  given  only  to  the  oliice,  he  must  quality,  which  he  need  not. 
/riie  condition  that  he  must  assent  can  only  be  because  such  bequests 
are  treated  as  in  recompense  for  his  services,  and  so  the  books  put 
it.  He  must  at  lea.st  undertake  to  perform  while  he  can.  If  tliey 
were  true  legacies,  he  would  get  them  whether  he  qualified  or  n<;t. 
Demurrers  overruled,  with  judgments  of  respondeat  ouster 
within  ^U  days. 


JACKSON  V.  SMIETANKA. 
CiECUiT  Court  of  Appeals.     1921. 

[Reported  207   Fed.  932.] 

Baker,  Circ.  J.  Jackson,  plaintiff,  filed  a  declaration  to  recover 
income  taxes  paid  by  him  under  j)rotest.  Defendant's  demurrer  was 
sustained;  plaintili"  declined  to  plead  over;  and  this  writ  of  error 
challenges  the  consequent  judgment. 

From  May,  1913,  to  April,  1918,  plaintiff  served  as  a  railroad 
receiver  under  appointment  of  the  District  Court  at  Chicago.  Plain- 
tiff accepted  the  employment  under  an  order  providing  that  he  "  be 
paid  on  account  of  his  services  at  the  rate  of  $2,000  per  month  "  and 
that  on  termination  of  his  trust  he  "'  shall  be  at  liberty  to  apply  for 
such  further  compensation  as  to  the  court  may  then  appear  reason- 
able and  just."  For  the  years  1913  to  1917  inclusive  plaintiff  made 
returns  on  the  basis  of  "  income  received  " ;  and,  respecting  this  re- 
ceivership, he  had  neither  a  business  system  nor  books  nor  unpaid 
allowances  for  service  from  which  he  could  have  made  returns  of 
"  income  accrued."  In  1918  plaintiff  was  allowed  and  paid  "  as  final 
payment  for  all  services  rendered  bv  him  during  the  receiversliip 
herein  the  additional  sum  of  $100,000"."  On  Marciri4,  1919,  plaintiff 
file  his  return  for  1918,  showing  the  receipt  of  said  $100,000,  and  also 
filed  amended  returns  for  1913  to  1917  inclusive,  in  which  he  claimed 
that  pro  rata  parts  of  said  $100,000  were  "accrued  income"  of  those 
years.  On  April  16,  1919,  the  collector  rejected  the  amended  returns 
and  demanded  normal  taxes  and  surtaxes  on  the  $100,000  so  received 
in  1918.  Plaintiff  then  prepared  and  on  April  22,  1919,  presented 
to  the  District  Court  a  petition  for  a  nunc  pro  tunc  order  showing 
that  the  additional  compensation  was  earned  and  had  accrued  in 
equal  monthly  installments  throusrhout  the  receivership,  and  the 
order  as  tendered  was  entered.  Thereupon  plaintiff,  on  May  28, 
1919,  paid  $26,826  under  protest,  and  subsequently  brought  this 
action  to  recover  the  difference,  $19,973. 

Fnless  some  effect  is  to  be  given  to  t1ie  7i7inc  pro  tunc  order,  the 
collector  was  right.  Section  213  of  the  Eevcnue  Act  of  1818  requires 
a  return  of  "  income  derived  from  salaries  or  compensation  for  per- 


458  JACKSON  V.    SMIETANKA.  [cKAr.  VII. 

sonal  service  "  and  provides  that  the  amount  thereof  "  shall  be  included 
in  the  gross  income  for  the  taxable  year  in  which  received  by  the  tax- 
payer unless  under  methods  of  account  permitted  under  subdivision 
(b)  of  section  212  any  such  amounts  are  to  be  properly  accounted 
for  as  of  a  diiferent  period."     That  subdivision  permits  a  return 
"upon  the  basis  of  the  taxpayer's  annual  account  period  (fiscal  year 
or  calendar  year,  as  the  case  may  be)  in  accordance  with  the  method 
of  accounting  regularly  employed  in  keeping  the  books  of  such  tax- 
payer; but  if  no  such  method  of  accounting  has  been  so  employed, 
or  if  the  method  employed  does  not  clearly  reflect  the  income,  the 
computation  shall  be  made  upon  such  basis  and  in  such  manner  as 
in  the  opinion  of  the  Commissioner  does  clearly  reflect  the  income." 
Xot  only  do  the  facts  of  this  case  demonstrate  that  there  is  no  per- 
mission in  that  subdivision  to  save  plaintiff  from  the  direct  mandate 
of  section  213,  but  article  32  of  Regulations  45  (authorized  by  section 
1309  of  the  Act)  explicitly  requires  that  "  where  no  determination  of 
compensation  for  personal  services  is  had  until  the  completion  of  the 
services,  the  amount  received  is  income  for  the  calendar  year  of  its 
determination."     Plaintiff  from  time  to  time  during  the  receiver- 
ship had  applied  to  the  court  for  additional  compensation,  and  the 
court  had   always  refused.     Manifestly   such   refusals  were  in   ac- 
cordance  with   the   original   order  of   appointment,   which   plainly 
denied  any  intermediate  right  to  additional  compensation  and  left 
the  question  of  what  additional  compensation,  if  any,  would  be  fair 
to  be  determined  when  the  trust  ended  and  to  be  dependent  upon  the 
outcome  of  the  administration.     And  whether  the  regulation  means 
that  the  compensation  is  income  of  the  year  in  which  the  deter- 
mination of  the  amount  is  made  or  is  income  of  the  year  in  which 
payment  is  made,  is  immaterial  in  the  present  case,  for  both  deter- 
mrnation  of  amount  and  payment  thereof  occurred  in  1918. 

A  year  after  plaintiff'  had' finally  stepped  out  of  the  District  Court 
and  a  month  after  his  liability  to' make  a  true  return  of  his  income 
for  1918  had  become  fixed,  plaintiff  reappeared  in  court  and  obtained 
the  aforesaid  nunc  pro  tunc  order.  Eespecting  the  general  question 
of  a  court's  authority  to  make  nunc  pro  tunc  orders  or  judgments, 
plaintiff  cites  certain  authorities,^  which  we  supplement  by  calling 
attention  to  others.^  In  regard  to  the  present  order  it  suffices  to 
say:  There  was  no  misprision  of  a  clerical  officer;  no  new  facts;  no 
newly  discovered  evidence  concerning  former  issues  of  fact ;  no  fail- 
ure in  the  court  to  enter  the  original  order  exactly  as  the  court  in- 
tended to  enter  it;  even  if  the  petition  for  the  nunc  pro  tunc  ordor 
had  tendered  an  issue  which  interested  the  original  parties  (the  rail- 
road company  and  its  creditors),  no  steps  were  taken  by  the  afore- 

^  Foster's  Fed.  Pr.  (6th  Ed.)  vol.  2,  §§  447,  447a,  448;  Lewis  v.  Holmes, 
224  Fed.  410;  Farmers  &  Merchants  Bank  v.  Arizona  M.  S.  &  L.  Ass'n,  220 
Fed.  1;  Accord  v.  Western  Pocahontas,  156  Fed.  989;  Kaw  Valley  Drainage 
District  v.  U.  P.  Rid.  Co.,  163  Fed.  830. 

^  Brooks  V.  Ry.  Co.,  102  U.  S.  107;  Brown  v.  Schulten,  104  U.  S.  410;  In 
re  Wio-ht,  1.34  U.  S.  136;  Hickman  v.  Fort  Scot,  141  U.  S.  415;  Gagnon  v. 
United  States,  193  U.  S.  4.51;  Wetmore  v.  Karrick,  205  U.  S.  141;  Brown 
V.  United  States,    196   Fed.   351. 


SECT.   IV.]  IIOLBROOK  V.   MOOEE.  459 

time  receiver  to  have  them  join  issue;  the  petition  was  heard  ex 
parte;  and  as  to  the  government  all  the  matters  in  tlie  District  Court 
were  res  inter  alios. 

The  judgment  is  affirmed. 


HOLBROOK  V.  MOORE. 
United  States  District  Court.     1921. 

[Reported  Am.  Hull.  ^'o.  4,  99.] 

Per  Curiam  (orally).  This  case  was  suhmitted  to  the  court 
sitting  as  a  jury,  and  a  jury  being  specially  waived  in  writing,  the 
court  heard  the  testimony  and  the  arguments  of  counsel  and  has 
since  considered  the  briefs  on  both  sides. 

The  facts  are  somewhat  unique,  and  I  confess  just  a  little  diffi- 
culty with  the  case.  Plaintiff  is  president  of  a  real  estate  company 
doing  business  here  in  the  city  of  St.  Louis.  He  is  also,  of  course,  a 
director  in  that  company.  He  and  two  others  of  the  directors  (of 
whom  there  are  five  in  all)  made  the  orders  and  passed  tiie  resolu- 
tions to  wliicli  I  shall  hereafter  refer.  The  remaining  two  directors 
had  nothing  to  do  with  these  orders  and  resolutions. 

Plaintiir  and  the  two  directors  having  to  do  with  the  resolution 
that  I  shall  mention  owned  75  per  cent  of  the  capital  stock;  25  per 
cent  is  in  the  hands  of  other  stockholders,  presumably  in  the  hands, 
among  otiiers,  of  the  two  directors  not  taking  part  in  the  orders  and 
resolutions  to  which  I  have  before  referred. 

In  the  years  preceding  March  1,  1913,  the  date  at  which  tlie 
income-tax  act  took  effect,  that  is,  the  act  of  October  3,  1913,  ])lain- 
tilf  was  the  active  manager  of  the  corporation  of  which  he  is  director 
and  president.  The  affairs  of  his  corporation  seem  to  have  been 
very  successful  and  profitable.  It  was  deemed  by  plaintiff  and  two 
of  the  directors  that  his  services  for  the  years  1909,  1910,  1911,  and 
1912  were  such  as  reasonably  to  entitle  him  to  additional  compensa- 
tion to  that  allowed  him  by  the  rules  and  by-laws  of  the  board  of 
directors.  No  agreement  as  to  the  amount  of  that  compensation  was 
ever  arrived  at  by  anybody  up  until  December,  1913. 

Plaintiff  relying,  as  he  says,  upon  tlie  promise  of  two  directors, 
became  indebted  to  the  company,  and  this  indebtedness  was  carried 
on  the  books  of  the  company  as  overdrafts.  These  overdrafts  of 
plaintiff  amounted  in  December,  1913,  to  about  $70,000.  In  this 
month  and  year  (plaintiff  and  two  other  directors  concurring) 
plaintiff  was  allowed  a  credit  upon  the  books  of  the  company  ft)r 
$50,000,  leaving  the  plaintiff  owing  the  company  at  that  time  $20,0(^0 
on  his  overdrafts.  Although  seven  years  have  passed,  neither  the 
other  two  directors  nor  the  stocklioldors  liave  ever  affirmatively 
acquiesced  in  this  allowance,  although  plaintiff  was  given  credit  for 
it  upon  the  books  of  the  coinpanv  in  December,  1913,  in  the  sum 
that  I  have  heretofore  stated  — $50,000. 


460  HOLBROOK  V.  MOORE.  [cHAP.   VII. 

In  the  year  1913  the  Kolbrook-Blackwelder  Eeal  Estate  Trust 
Co.  (I  believe  this  is  the  exact  style  of  it)  made  out  its  return  as  it 
was  required  to  do  by  the  law  then  in  force,  as  a  basis  of  assessment 
against  it  of  an  income  tax  for  the  year  1913.  It  may  have  been, 
perhaps,  in  January,  1914,  but  that  cuts  no  figure  in  the  case.  In 
tins  return  it  took  credit  for  the  $50,000  that  it  had  allowed  to 
plaintiff  on  its  books,  as  an  expense.  It  is  true  that  it  happened, 
fortuitously,  that  the  company  during  the  year  1913  had  lost  $76,- 
000,  so  that  it  had  to  pay  no  income  tax  at  all.  It  would  not  have 
had  to  pay  it  in  any  event. 

Upon  this  $50,000  so  carried  to  the  credit  of  plaintiff  upon  the 
books  of  his  company  in  1913,  the  defendant  assessed  against  him 
an  income  tax  amounting  to,  I  believe,  $990.36.  This  tax  the 
plaintiff  paid.  x\fter  the  usual  procedure,  he  brought  suit  against 
the  defendant,  Moore,  in  order  to  secure  a  refund.  The  question  is 
whether  this  tax  was  correctly  or  incorrectly  assessed  against  him 
under  the  law  then  in  force.  I  have  reached  the  conclusion  that 
it  was. 

Up  until  December,  1913,  and  on  the  28th  of  the  month,  I  be- 
lieve, there  had  never  been  an  ascertainment  of  the  amount  that 
plaintiff  should  have  from  the  company  as  additional  compensation ; 
that  matter  was  left  undetermined.  It  is  true  that  he  had  gotten 
the  money  and  had  spent  it  in  the  years  preceding  the  taking  effect 
of  the  income-tax  act  of  October,  1913.  Upon  the  books  of  the 
company  he  owed  it  overdrafts  not  only  for  the  $50,000,  but  for  an 
amount  largely  in  excess  of  that  sum.  Up  to  that  time  he  had  never 
gotten  it  and  it  was  not  certain  that  he  ever  would  get  it.  But  at 
this  time  the  credit  to  come  to  him  was  finally  settled  upon  and 
segregated  by  an  order  of  the  board.  It  may  be  said,  since  only 
two  members  of  the  board  (in  addition  to  plaintiff  himself)  ac- 
quiesced in  this,  that  therefore  it  was  no  order,  and  that  since  the 
other  two  directors  and  the  stockholders  have  never  to  this  good 
day  acquiesced  in  it,  that  it  was  no  order.  I  take  it  that  the  com- 
pany is  foreclosed  by  the  fact  that  they  took  credit  for  it  when  they 
made  their  income  tax  return  for  the  year  following  the  year  at 
which  they  passed  this  credit  to  plaintiff  upon  the  corporation's  books. 

I  am  led  to  the  conclusion  that  I  have  reached  largely  by  the  case 
of  Jackson  v.  Smietanka,  267  Fed.  932.  .  .  . 

This  Jackson  case  is  the  one  that  I  find  nearest  to  the  facts  in 
this  case.  As  I  stated  in  the  beginning,  the  case  is  a  close  and 
difficult  one,  but  I  have  concluded  both  upon  the  reasoning  and 
under  the  authority  of  the  Jackson  case,  that  the  judgment  should 
be  for  the  defendant. 

It  is  so  ordered. 


SECT.   IV.]         LEDEEER  V.   NORTHERN  TRUST  COMPANY.  401 

LEDEEER  v.  NORTHERN  TRUST  COMPANY. 
Circuit  Court  of  Ai'I'i:al.s.     rj;<ju. 

[Reported  2G2  Fed.  52.] 

WooLLFA',  Circ.  J.  The  question  is  whether  the  collateral  inherit- 
ance tax  imposed  by  the  Pennsylvania  act  of  1887  falls  within  the  de- 
ductions allowed  by  section  'Zi)6  ot"  the  Federal  estate  tax  act  of  1!>1G 
in  arriving  at  the  value  of  the  "net  estate"  on  which  alone  the 
Federal  act  imposes  the  tax.  In  other  words,  is  the  amount  which 
the  decedent's  estate  paid  the  Commonwealth  of  Penn.sylvania  a-  a 
collateral  inheritance  tax  either  (a)  "an  administration  expen.se,'' 
or  (b)  "a  claim  against  the  estate,"  or  (c)  one  of  "such  other 
charges  against  the  estate  as  are  allowed  by  the  laws  of  the  jurisdic- 
tion .  .  .  under  which  the  estate  is  being  administered?" 

This  controversy  concerns  broadly  the  privileges  which  govern- 
ments make  the  subject  of  "death  duties"  —  the  privileges  of  giv- 
ing and  the  privilege  of  receiving  property  on  death,  and  the 
conditions  imposed  and  price  exacted  by  the  State  for  the  exercise 
of  those  privileges.  Magoun  v.  Illinois  Trust  &  Savings  Bank,  170 
U.  S.  283,  287;  Maxwell  v.  Bugbee,  250  U.  S.  525. 

The  question  here  turns  on  the  nature  of  the  two  taxes,  Federal 
and  State.  It  concerns  generally  the  Federal  tax,  which  both  parties 
concede  to  be  an  estate  tax;  that  is,  a  tax  that  relates  not  to  an 
interest  to  which  some  person  has  succeeded  by  inheritance,  bequest, 
or  devise,  but  to  an  interest  which  has  ceased  by  reason  of  death ; 
and  it  is  imposed  not  upon  the  interest  of  the  recent  owner  or  upon 
his  privilege  to  dispose  of  it,  but  upon  the  transfer  of  the  interest 
in  its  devolution.  The  nature  of  the  Federal  tax  being  conceded, 
the  matter  for  decision  concerns  particularly  the  nature  of  tlie  col- 
lateral inheritance  tax  of  Pennsylvania,  and  raises  the  question 
whether  that  tax  is  an  estate  tax,  which,  like  the  Federal  tax,  con- 
cerns an  interest  which  has  ceased  upon  death,  the  burden  of  which 
is  imposed  upon  the  estate  of  a  decedent,  as  claimed  by  the  executors, 
or  is  a  legacy  or  succession  tax,  which  concerns  the  privileges  of  re- 
ceiving such  an  interest,  the  burden  of  which  is  imposed  upon  the 
legatee  or  other  beneficiary,  as  claimed  by  the  collector. 

The  bearing  of  this  question  on  the  case  in  hand  is  that  if  the 
collateral  inheritance  tax  of  Pennsylvania  is  an  estate  tax  and  is 
therefore  a  "  charge "  against  the  estate  "  allowed "  in  its  settle- 
ment by  the  laws  of  Pennsylvania,  then  the  refusal  of  the  collector 
to  deduct  the  amount  of  the  tax  from  the  gross  in  ascertaining  the 
net  estate  of  the  decedent  as  a  basis  of  assessment  was  unwarranted. 
If,  on  the  other  hand,  it  is  a  tax  charged  not  against  the  estate,  but 
against  the  legatee  as  a  condition  imposed  upon  the  transfer  of  the 
legacy,  then  the  net  estate  of  the  decedent,  determined  without  de- 
ducting the  collateral  inlieritance  tax  paid  the  Commonwealth  of 
Pennsylvania,  was  properly  computed  under  the  Federal  act,  and 
the  tax  assessed  against  the  smne  was  lawful. 


462  LEDERER  V.  NORTHERN  TRUST  COMPANY.        [ciIAP.   VII. 

The  nature  of  collateral  iuheritanee  taxes  has  been  the  subject  of 
many  decisions,  both  Federal  and  State.  The  general  principle  of 
such  of  them  as  are  termed  legacy  and  succession  taxes,  when  not 
otherwise  affected  by  statutory  provisions,  is  that  the  tax  is  upon 
the  legacy  before  it  reaches  the  hands  of  the  legatee,  whose  property 
it  becomes  only  after  it  has  yielded  its  contribution  to  the  State  and 
after  it  has  suffered  a  diminution  to  the  amount  of  the  tax  in  return 
for  the  legislature's  assent  to  the  bequest.  Knowlton  v.  Moore,  178 
U.  S.  41,  following  United  States  u.  Perkins,  163  XJ.  S.  625;  Ma- 
goun  V.  Illinois  Trust  &  Savings  Bank,  170  U.  S.  283;  Magee  v. 
Grima,  8  How.  490,  493. 

But  in  looking  for  the  nature  of  the  collateral  inheritance  tax 
under  consideration,  it  is  not  necessary  to  seek  light  from  statutes 
and  decisions  of  other  States,  for  the  act  shows  its  nature  by  its 
own  clear  expressions  aided  by  interpretations  repeatedly  made  by 
the  Supreme  Court  of  Pennsylvania. 

The  acts  provide  that  "all  estates  .  .  .  shall  be  subject"  to  the 
tax;  that  executors  and  administrators  shall  pay  the  tax;  that  until 
they  pay  it  they  shall  not  be  discharged;  that  the  auditor  general's 
receipt  for  its  payment  shall  be  a  proper  voucher  in  the  settlement 
of  the  estate;  and  that  in  stating  an  account  in  the  orphans'  court 
the  tax  shall  be  allowed  and  deducted  before  a  balance  for  distribu- 
tion is  struck. 

The  tax,  which  operates  practically  as  a  deduction  from  the  share 
of  the  beneficiary,  is,  nevertheless,  charged  against  and  paid  by  the 
estate.  In  using  the  words  "all  estates"  shall  be  subject  to  the  tax, 
the  Supreme  Court  of  Pennsylvania  has  held  that  the  legislature 
contemplated  the  property  of  "the  decedent,  not  the  interest  therein 
of  the  legatee  or  distributee  (Debusto's  Estate,  24  Legal  Intell. 
474;  Howell's  Estate,  147  Pa.  164);  that  the  tax  is  imposed  only 
once,  and  that  is  before  the  legacy  has  reached  the  legatee  and  before 
it  has  become  his  property;  that  it  must  be  retained  and  paid  by 
the  executor  or  administrator  who  has  the  decedent's  property  in 
charge;  that  which  the  legatee  really  receives  is  not  taxed  at  all; 
his  property  is  that  which  is  left  after  the  tax  has  been  taken  off. 
Finnen's  Estate,  196  Pa.  72.  In  Jackson  v.  Meyers,  257  Pa.  104, 
where  the  question  was  squarely  raised,  the  Supreme  Court  decided 
that  the  collateral  inheritance  tax  of  Pennsylvania  is  not  levied 
upon  an  inheritance  or  legacy  but  upon  the  estate  of  the  decedent, 
holding  that  what  passes  to  the  legatee  is  simply  the  portion  of  the 
estate  remaining  after  the  State  has  been  satisfied  by  receiving 
the  tax. 

These  decisions  by  the  Supreme  Court  of  Pennsylvania,  constru- 
ing a  statute  of  its  own  State,  are  binding  on  this  court  in  a  case 
of  this  kind.  From  these  decisions  it  appears  to  be  settled  in 
Pennsylvania  that  the  collateral  inheritance  tax  of  that  State  is  an 
estate  tax,  not  a  legacy  tax,  and  that  as  such  it  is  levied  upon  and 
made  a  charge  against  the  estate  of  the  decedent. 

Consistently  with  this  view,  the  Supreme  Court  of  Pennsylvania 
recently  held,  in  a  situation  just  the  reverse  of  this,  that  in  deter- 


SECT.    IV.]  PRENTISS    V.   EISNEK.  463 

mining  the  amount  of  a  dt'cedent's  estate  for  tiie  purpose  of  assess- 
ing the  PennBjlvania  eoHalfral  inheritance  tax,  the  Federal  estate 
tax  under  consideration  should  llrst  Ijo  deducted  as  a  charge  against 
the  estate.     Knight's  Estate,  'Z(J\   I'a.  ryAI . 

We  are  of  opinion  liial  the  colhitoral  inheriUmce  tax  of  Tennsyl- 
vania  clearly  falls  within  the  provision  of  the  Federal  act  as  a 
"charge"  against  the  estate  of  a  decedent  "allowed  by  the  laws  of 
the  jurisdiction  .  .  .  under  which  the  estate  is  being  settled,"  and 
is,  therefore,  properly  deductible  from  the  gross  estate  in  determin- 
ing the  net  estate  against  which  the  Federal  tax  is  ai^sessed.  There 
is,  therefore,  no  occasion  to  go  further  and  decide  the  other  ques- 
tions raised  at  the  argument,  whether  the  State  collateral  inheritance 
tax  is  also  an  "administration  expense,"  or  a  "claim  against  the 
estate,"  similarly  deductible  under  section  203  of  the  Federal  act 
in  ascertaining  the  decedent's  net  estiite  as  a  basis  of  taxation.  A 
consideration  of  these  aspects  of  the  t^ix  would  require  us  to  recon- 
cile at  least  two  opposing  decisions  rendered  under  State  statutes 
with  the  different  provisions  (Corbin  v.  Townshend,  92  Conn.  501, 
103  Atl.  647;  In  re  Sherman's  Estate,  166  N.  Y.  Supp.  19)  ;  and 
to  determine  whether  tlie  terms  "administration  expenses"  and 
"  claims  against  the  estate,"  as  found  in  the  statute,  are  restricted 
to  or  extended  beyond  their  ordinary  meaning. 

As  this  case  arose  before  the  act  of  February  24,  1919,  by  which 
the  terms  of  the  act  of  September  8,  1916,  were  materially  changed, 
this  decision  has  no  bearing  on  the  later  statute. 

The  judgment  below  is  affirmed. 


PEENTISS  V.  EISNER. 
CiECUiT  Court  of  Appeals.     1920. 

[Reported  267  Fed.   16.] 

This  cause  comes  here  on  writ  of  error  to  the  United  States  Dis- 
trict Court  for  the  Southern  District  of  New  York. 

The  facts  are  stated  in  the  opinion. 

EoGERS,  Circ.  J.  This  is  an  action  to  recover  from  the  de- 
fendant the  sum  of  $7,432.88  with  interest,  which  amount  the 
plaintiff  alleges  she  was  wrongfully  compelled  to  pay  to  the  de- 
fendant as  collector  of  internal  revenue. 

It  appears  that  the  plaintiff  and  her  then  husband,  since  deceased, 
filed  with  the  defendant  a  joint  return  of  their  net  income  for  the 
vear  1913,  pursuant  to  the  act  of  Cons:ress  approved  October  3, 
1913  (IT.  S.  Stat.  L..  vol.  38,  pt.  1,  eh.  16,  Sec.  II,  p.  166). 

The  aforesaid  act  of  Congi-ess,  in  paragraph  B,  page  167,  provided 
as  follows : 

That,  subject  only  to  such  exemptions  and  deductions  as  herein- 
after  allowed,   the   net   income   of  a    taxable   person   shall    include 


464  PRENTISS  V.  EISNER.  [ciIAP.  VII. 

gains,  profits,   and   income,   including  .  .  .  but   not   the   value   of 
property  acquired  by  gift,  bequest,  devise,  or  descent  .  .  , 

That  in  computing  the  net  income  for  the  purpose  of  the  normal 
taxes  there  shall  be  allowed  as  payment;  .  .  .  third,  all  national, 
State,  count}',  school,  and  municipal  taxes  paid  within  the  year,  not 
including  those  assessed  against  local  benefits. 

And  in  paragraph  D,  page  168,  it  provided  as  follows: 

The  said  tax  shall  be  computed  upon  the  remainder  of  said  net 
income  of  each  person  subject  thereto  accruing  during  each  preced- 
ing calendar  year  ending  December  thirty-first:  Provided,  however, 
That  for  the  year  ending  December  thirty-first,  nineteen  hundred 
and  thirteen,  said  tax  shall  be  computed  on  the  net  income  accruing 
from  March  first  to  December  thirty-first,  nineteen  hundred  and 
thirteen,  both  dates  inclusive,  after  deducting  five-sixths  only  of 
the  specific  exemptions  and  deductions  herein  provided  for. 

It  appears,  too,  that  in  the  year  1913  the  plaintiff  inherited  a 
portion  of  her  father's  estate  and  that  on  the  inheritance  thus  re- 
ceived by  her  the  State  of  New  York  assessed  against  her  an  in- 
heritance tax  of  $259,805.71,  which  amount  she  paid  on  December 
11,  1913. 

The  plaintiff  in  making  her  income  return  under  the  act  of  Con- 
gress included  therein  as  a  deduction  five-sixths  of  the  inheritance 
tax  which  she  had  paid  to  the  State  of  New  York,  which  amounted 
to  $216,504.75.  This  deduction  was  not  allowed  by  the  Commis- 
sioner of  Internal  Eevenue,  and  he  levied  and  assessed  against  her 
an  additional  tax  of  $7,432.88.  Thereupon  she  instituted  this  action 
to  recover  back  the  amount  so  paid. 

The  complaint  was  demurred  to  upon  the  ground  that  it  did  not 
state  facts  sufficient  to  constitute  a  cause  of  action.  The  court  below 
sustained  the  demurrer  and  dismissed  the  complaint. 

The  question  of  law  thus  presented  is  whether  the  payment  by  the 
plaintiff  of  the  inheritance  tax  to  the  State  of  New  York  was  a 
proper  deduction  from  her  income  tax  return  for  the  year  1913. 
That  is  the  sole  question  herein  involved.  The  plaintiff's  contention 
is  that  the  inheritance  tax  which  she  paid  to  the  State  of  New  York 
was  a  tax  paid  to  a  State,  and  therefore  under  the  act  of  Congress 
the  plaintiff  was  entitled  to  make  the  deduction  of  five-sixths  of  the 
amount  so  paid  in  making  her  income  return. 

The  Commissioner  of  Internal  Revenue  in  making  the  ruling  to 
which  reference  has  been  made  stated  that  — 

A  collateral  inheritance  tax  levied  under  the  laws  of  the  State 
of  New  York  being,  as  it  is,  a  charge  against  the  corpus  of  the  estate, 
does  not  constitute  such  an  item  as  can  be  allowed  as  a  deduction  in 
computing  income  tax  liability  to  either  the  estate  or  beneficiary 
thereof. 

The  district  judge  in  sustaining  the  demurrer  states  that  he  did 
not  regard  the  New  York  transfer  tax  "  as  imposing  a  tax  upon  the 


SECT.    IV. J  PEENTISS  V.   EISNER.  465 

plaintiff's  right  of  succession  which  is  deductible  in  her  income-tax 
return." 

Material  provisions  of  the  New  York  transfer  tax  act  may  be 
found  in  the  margin. 

The  New  York  act  reads  as  follows  in  section  220  of  Article  X : 

A  tax  shall  be  and  is  hereby  imposed  upon  the  transfer  of  .  .  . 
property.  .  .  to  persons  or  corporations  in  the  following  cases  .  .  .  : 
(1)  When  the  transfer  is  by  will  or  by  the  intestate  laws  of  this 
State  ...  (4)  when  the  transfer  is  by  deed  .  .  .  intended  to  take 
effect  in  possession  or  enjoyment  at  or  after  such  death.  .  .  .  The 
tax  imposed  hereby  shall  be  upon  the  clear  market  value  of  such 
property  at  the  rates  hereinafter  prescribed. 

Section  224  reads  as  follows: 

Lien  of  tax  and  collection  by  executors,  administrators,  and  trus- 
tees.— -Every  such  tax  shall  be  and  remain  a  lien  upon  the  property 
transferred  until  paid  and  the  person  to  whom  the  property  is  so 
transferred,  and  the  executors,  administrators,  and  trustees  of  every 
estate  so  transferred  shall  be  personally  liable  for  such  tax  until  its 
payment.  Every  executor,  administrator,  or  trustee  shall  have  full 
power  to  sell  so  much  of  the  property  of  the  decedent  as  will  enable 
him  to  pay  such  tax  in  the  same  manner  as  he  might  be  entitled  by 
law  to  do  for  the  payment  of  the  debts  of  the  testator  or  intestate. 
Any  such  executor,  administrator,  or  trustee  having  in  charge  or  in 
trust  any  legacy  or  property  for  distribution  subject  to  such  tax 
shall  deduct  the  tax  therefrom  and  shall  pay  over  the  same  to  the 
State  comptroller  or  county  treasurer,  as  herein  provided.  If  such 
legacy  or  property  be  not  in  money,  he  shall  collect  the  tax  thereon 
upon  the  appraised  value  thereof  from  the  person  entitled  thereto. 
He  shall  not  deliver  or  be  compelled  to  deliver  anv  specific  legacy  or 
property  subject  to  tax  under  this  article  to  any  person  until  he 
shall  have  collected  the  tax  thereon.  If  any  such  legacy  shall  be 
charged  upon  or  payable  out  of  real  property,  the  heir  or  devisee 
shall  deduct  such  tax  therefrom  and  pay  it  to  the  executor,  ad- 
ministrator, or  trustee,  and  the  tax  shall  remain  a  lien  or  charge  on 
such  real  property  until  paid,  and  the  payment  thereof  shall  be  en- 
forced by  the  executor,  administrator,  or  trustee,  in  the  same  man- 
ner that  payment  of  the  legacy  might  be  enforced,  or  by  the  district 
attorney  under  section  two  hundred  and  thirty-five  of  this  chapter. 
If  any  such  legacy  shall  be  given  in  money  to  any  such  person  for 
a  limited  period,  the  executor,  administrator,  or  trustee  shall  retain 
the  tax  upon  the  whole  amount,  but  if  it  be  not  in  money,  he 
shall  make  application  to  the  court  having  jurisdiction  of  an  ac- 
counting by  him,  to  make  an  apportionment,  if  the  case  require  it,  of 
the  sum  to  be  paid  into  his  hands  by  such  legatee,  and  for  such 
further  order  relative  thereto  as  the  case  may  require. 

The  right  to  dispose  of  property'  by  will  is  statutory.  The  matter 
has  always  been  recognized  as  within  the  legislative  control.  In  the 
reign  of  Henry  II  ( 1 154-1 1S9)  a  man's  personal  property  was,  at 


466  PEENTISS  V.  EISNEll.  [ciIAl'.  VII. 

his  death,  divided  into  three  equal  parts,  if  he  died  leaving  a  wife 
and  children:  One  part  went  to  his  wife,  another  to  his  children, 
and  only  the  remaining  third  could  be  disposed  of  by  his  will.  And, 
at  least  after  the  establishment  of  the  feudal  system  and  prior  to 
the  enactment  of  the  statute  of  wills  (32  Henry  VIII),  the  right 
to  make  a  will  of  real  estate  was  not  known  to  the  English  law. 

There  has  been  and  still  is  a  difference  of  opinion  among  the 
courts  as  to  the  exact  nature  of  an  inheritance  tax.  It  is  generally 
agreed  that  such  a  tax  is  not  upon  the  property  or  money  bequeathed. 
The  dispute  is  over  the  question  whether  the  tax  is  laid  on  the 
privilege  of  receiving  the  property  so  transmitted.  The  right  to 
transmit  and  the  right  to  receive  are  distinct,  and  each  is  alike 
under  the  legislative  control.  The  distinction  between  the  right  to 
transmit  and  the  right  to  receive  is  important  and  upon  the  distinc- 
tion depends  the  right  to  deduct  or  not  to  deduct  the  amount  of  the 
tax  in  the  income  return  submitted  to  the  Federal  Government. 

The  Circuit  Court  of  Appeals  in  the  Third  Circuit  has  recently 
decided  Lederer  v.  Northern  Trust  Co.,  262  Fed.  52.  In  that  case 
the  question  arose  as  to  the  right  to  deduct  a  tax  paid  under  the 
collateral  inheritance  tax  act  of  the  State  of  Pennsylvania.  The 
answer  to  be  given  to  that  question  depended  upon  whether  the 
Pennsylvania  tax  was  an  estate  tax,  the  burden  of  which  was  im- 
posed upon  the  estate  of  a  decedent  as  claimed  by  the  executors,  or 
was  a  legacy  tax,  the  burden  of  which  was  imposed  upon  the  legatee 
or  beneficiary.  It  happened  that  the  Supreme  Court  of  Pennsylvania 
in  Jackson  v.  Meyers,  257  Pa.  104,  had  squarely  decided  that  the 
collateral  inheritance  tax  of  that  State  was  not  levied  upon  an  in- 
heritance or  legacy,  but  upon  the  estate  of  the  decedent,  and  had 
held  that  what  passed  to  the  legatee  was  simply  the  portion  of  the 
estate  remaining  after  the  State  had  been  satisfied  by  receiving  the 
tax.  The  Circuit  Court  of  Appeals  held  that  the  decision  of  the 
Supreme  Court  of  Pennsylvania  construing  the  inheritance  tax  law 
of  that  State  was  binding  on  the  Federal  courts,  and  that  inasmuch 
as  the  tax  was  held  by  that  court  as  a  tax  on  the  estate  and  not 
a  tax  on  the  inheritance,  the  amount  of  the  tax  so  paid  was  properly 
deductible  in  computing  the  net  estate  under  the  act  of  Congress  of 
September  8,  1916.  Under  a  like  state  of  facts  we  should  have  no 
difficulty  in  reaching  a  like  conclusion.  But  the  case  with  which  we 
are  dealing  presents  a  different  question,  involving  as  it  does  the 
tax  law  not  of  Pennsylvania  but  of  New  York. 

In  1900  the  Supreme  Court  in  Knowlton  v.  Moore,  178  U.  S.  41, 
had  under  consideration  a  tax  imposed  under  the  war  revenue  act 
of  June  13,  1898  (20  Stat.  448).  The  opinion  in  that  case  is  ex- 
haustive and  occupies  about  70  pages.  It  deals  with  the  subject  of 
death  duties  and  sustains  the  constitutional  right  of  Congress  to 
impose  death  duties.  In  the  course  of  the  opinion,  which  was  writ- 
ten by  Justice  (now  Chief  Justice)  White,  it  was  said: 

Thus,  looking  over  the  whole  field,  and  considering  death  duties 
in  the  order  in  which  we  have  reviewed  thorn  —  that  is.  in  the  Eo- 


SECT.    IV.]  PKENTISS  V.   EISNEE.  40" 

man  and  ancient  law;  in  that  of  modern  France,  Germany,  and 
other  continental  countries;  in  England  and  tliose  of  lier  colonies 
where  such  laws  have  been  enacted,  in  the  legislation  of  the  United 
States  and  the  several  States  of  the  Union  —  the  following  ap- 
pears: Although  dilferent  modes  of  assessing  such  duties  prevail, 
and  although  they  have  dill'erent  accidental  names,  such  as  probate 
duties,  stamp  duties,  taxes  on  the  transaction,  or  the  act  of  passing 
of  an  estate  or  a  succession,  legacy  taxes,  estate  taxes,  or  privilege 
taxes,  nevertheless  tax  laws  of  this  nature  in  all  c(Juntrios  rest  in 
their  essence  upon  the  principle  that  death  is  the  generating  source 
from  which  the  particular  taxing  power  takes  its  being  and  that  it 
is  the  power  to  transmit,  or  the  transmission  from  the  dead  to  the 
living,  on  which  such  tiixes  are  more  immediately  rested. 

It  thus  appears,  as  the  opinion  of  the  court,  that  in  general  death 
duties  are  imposed  on  the  power  to  transmit.  However,  the  im- 
mediate question  with  which  we  are  now  concerned  is  whether  the 
so-called  tax  which  the  New  York  law  has  imposed,  and  which  is 
herein  involved,  is  a  tax  upon  the  power  to  transmit  or  is  laid  on  the 
power  to  receive.  In  1880  a  testator  within  the  State  of  New  York 
died  and  devised  and  bequested  all  his  estate,  both  real  and  per- 
sonal, to  the  Government  of  the  United  States.  The  Surrogate's 
Court  imposed  an  inheritance  tax  upon  the  personal  property.  The 
case  was  taken  on  apj)eal  to  the  general  term  of  the  Supreme  Court 
of  New  York  and  later  to  the  New  York  Court  of  Appeals,  by  each 
of  which  it  was  affirmed.  It  was  then  taken  to  the  Supreme  Court  of 
the  United  States,  by  wliich  it  was  in  like  manner  affirmed.  The 
question  was  whether  the  personal  property  bequeathed  to  the 
United  States  was  subject  to  an  inheritance  tax  under  the  laws 
of  New  York.  The  Supreme  Court  held  the  property  to  be  subject 
to  the  tax.  United  States  v.  Perkins,  163  U.  S.  625.  In  the 
course  of  its  opinion  the  court  said :  "  In  this  view  the  so-called 
inheritance  tax  of  the  State  of  New  York  is  in  reality  a  lim- 
itation upon  the  power  of  a  testator  to  bequeath  his  property  to 
whom  he  pleased ;  a  declaration  that,  in  the  exercise  of  that  power, 
he  shall  contribute  a  certain  percentage  to  the  public  use;  in  other 
words,  that  the  right  to  dispose  of  his  property  by  will  shall  remain, 
but  subject  to  a  condition  that  the  State  has  a  right  to  impose. 
Certainly,  if  it  be  true  that  the  right  of  testamentary  disposition  is 
purely  statutory,  the  State  has  a  right  to  require  a  contribution  to 
the  public  treasury  before  the  bequest  shall  take  effect.  Thus  the 
tax  is  not  upon  property,  in  the  ordinary  sense  of  the  term,  but 
upon  the  right  to  dispose  of  it,  and  it  is  not  until  it  has  yielded  its 
contribution  to  the  State  that  it  becomes  the  property  of  the  lega- 
tee." And  the  court  went  on  to  say:  "That  the  tax  is  not  a  tax 
upon  the  property  itself,  but  upon  its  transmission  by  will  or  by 
descent,  is  also  held  both  in  New  York  and  in  several  other  States." 
We  find  no  case  in  the  subsequent  decisions  of  the  New  York  Court 
of  Appeals  in  which  that  court  disclaims  the  construction  placed  by 
tlie  Supreme  Court  of  the  United  States  on  the  New  York  decisions. 


468  PEENTISS  V.  EISXER.  [ciIAP.  Vn. 

or  in  any  ■way  qualifies  or  overrules  the  proposition  that  the  "  tax  " 
under  the  New  York  law  is  not  one  upon  the  property,  but  is  one 
upon  the  right  to  dispose  of  it  by  will  or  by  descent.  In  the  absence 
of  such  a  decision  it  seems  to  be  our  duty  to  follow  the  law  as  it  is 
laid  down  in  the  Perkins  case,  unless  there  can  be  found  in  the  New 
York  statute  in  force,  when  the  present  tax  was  laid,  some  sub- 
stantial difference  from  the  statute  in  force  when  that  case  was  de- 
cided in  the  particular  now  being  considered.  If  such  a  difference 
exists  we  have  failed  to  detect  it,  and  learned  counsel  have  failed 
to  point  out  in  what  it  consists. 

The  New  York  Court  of  Appeals  in  1919,  in  Matter  of  Watson, 
226  N,  Y.  384:,  399,  the  court,  in  discussing  a  provision  in  the  New 
York  inheritance  tax  law  imposing  a  tax  upon  the  transfer  of  prop- 
erty at  the  time  of  death  which  had  not  theretofore  paid  any  tax, 
local  or  State,  said :  ''  The  benefieiary  has  no  claim  to  the  property 
of  an  ancestor  except  as  given  by  law,  and,  if  the  State  has  a  right 
to  impose  a  tax  at  all  upon  the  passing  of  property,  the  transferee 
takes  only  what  is  left  after  the  tax  is  paid.''  The  opinion  quotes 
at  page  396  from  the  opinion  of  the  Supreme  Court  of  the  United 
States  in  the  matter  of  Penfield,  216  N.  Y.  163,  167,  1915,  that 
under  the  New  York  law  the  inheritance  tax  is  not  upon  the  prop- 
erty but  upon  the  right  to  dispose  of  it.  Tliere  is  not  one  word  of 
criticism,  not  one  word  of  dissent,  and  not  the  slightest  suggestion 
of  disapproval  of  that  proposition  anywhere  in  the  opinion. 

In  matter  of  Penfield,  supra,  the  New  York  court  declares  what 
it  had  several  times  before  stated,  that  "  the  transfer  tax  is  not  a 
tax  upon  property,  but  upon  the  right  of  succession  to  property." 
The  language  of  the  statute  is  that  the  tax  is  "  due  and  payable  at 
the  time  of  the  transfer  " ;  that  is,  at  the  death  of  the  decedent.  It 
accrues  at  that  time. 

Now  a  succession  tax  is  a  tax  upon  a  transfer  of  property  in  gen- 
eral and  as  such  is  distinj^uishable  from  a  legacy  duty,  which  is  a 
tax  upon  a  specific  bequest.  Under  the  New  York  law  the  succes- 
sion tax  creates  a  lien  upon  the  estate  of  the  decedent  at  the  moment 
of  his  death.  The  right  of  the  State  to  the  amount  of  this  lien  at- 
taches at  that  time  and  it  must  be  paid  before  the  transferee,  legatee, 
or  devisee  ever  gets  anything,  and  the  executor  or  administrator  is 
personally  liable  for  the  tax  until  it  has  been  paid.  Under  such  a 
law  we  do  not  see  that  the  transferee  pays  the  tax.  In  stating  this 
conclusion  we  have  not  overlooked  what  was  said  in  the  matter  of 
Gihon,  169  N.  Y.  443,  447,  where  it  is  said  that  "though  the  ad- 
ministrator or  executor  is  required  to  pay  the  tax,  he  pays  it  out 
of  the  legacy  for  the  legatee,  not  on  account  of  the  estate.  The  re- 
quirement of  the  statute  that  the  executor  or  administrator  shall 
make  the  payment  is  prescribed  to  secure  such  payment,  because 
the  Government  is  unwilling  to  trust  solely  to  the  legatee."  The 
fact,  however,  remains  that  if  a  legacy  left  lay  a  will  is  $10,000  and 
the  executor  has  paid  to  the  State  on  its  account  a  tax  of  $500  and 
then  has  turned  over  to  the  legatee  $9,500,  the  legatee  has  received 
not  $10,000  but  $9,500,  and  the  legatee  has  been  enriched  only  to 


SECT.   IV.]  UNITED  STATES  V.  WOODWAKD.  469 

the  extent  of  the  amount  which  he  has  himself  received,  and  he  has 
not  paid  tlie  tax  nor  has  it  been  paid  by  his  authority,  nor  by  any- 
one representing  him.  The  payment  has  been  m.ule  by  the  personal 
representative  of  the  deceased,  and  in  making  it  lie  has  acted  under 
authority  of  the  statute. 

As  was  said  by  Judf^e  Gray  in  Matter  of  Swift,  137  X.  Y.  77, 
""What  has  the  State  done,  in  ell'ect,  by  the  enactment  of  this  tax 
law?  It  reaches  out  and  appropriates  for  its  use  a  portion  of  the 
property  at  the  moment  of  its  owner's  decease;  allowing  only  the 
balance  to  pass  in  the  way  directed  by  the  testator,  or  permitted  by 
its  intestate  law." 

We  admit  that  the  New  York  cases  on  the  subject  of  taxable 
transfers  are  confused  and  not  always  clear  and  consistent.  But 
until  the  New  York  Court  of  Appeals  authoritiitively  states  that  the 
law  of  Xew  York  is  not  what  the  Supreme  Court  of  the  United 
States  said  it  was  in  the  Perkins  case,  this  court  has  no  alternative 
but  to  hold  that  the  New  York  transfer  act  does  not  impose  a  tax 
on  a  legatee's  right  of  succession  which  is  deductible  in  her  income 
tax  return.  The  legacy  which  the  plaintiff  herein  received  under 
the  will  of  her  fatlier  did  not  become  her  property  until  after  it 
had  suffered  a  diminution  to  the  amount  of  the  tax,  and  the  tax 
that  was  paid  thereon  was  not  a  tax  paid  out  of  the  plaintiff's  in- 
dividual estate  but  was  a  payment  out  of  the  estate  of  her  deceased 
father  of  that  part  of  his  estate  which  the  State  of  Xew  York  had 
appropriated  to  itself  which  payment  was  the  condition  precedent 
to  the  allowance  by  the  State  of  the  vesting  of  the  remainder  in  the 
legatee. 

Judgment  affirmed. 


UNITED  STATES  v.  WOODWARD. 

SuPEEME  Court  of  the  United  States.     1921. 
[Reported  256  U.  S.  632.] 

Van"  Devaxter,  J.  This  is  an  appeal  from  a  judgment  in  favor 
of  the  executors  of  Joseph  H.  Woodward,  deceased,  for  money 
claimed  to  have  been  erroneously  exacted  from  them  as  a  tax  on  the 
income  of  his  estate  while  in  their  hands. 

The  testator  died  December  15,  1917.  The  revenue  act  of  1916^ 
"  imposed  upon  the  transfer  of  the  net  estate  of  every  decedent " 
dying  thereafter  a  tax  which  it  called  an  "  estate  tax."  the  act  fixed 
the  amount  of  the  tax  at  a  named  percentage  "  of  the  value  of  the  net 
estate,"  made  the  tax  a  lien  upon  the  "  entire  gross  estate,"  required 
that  it  be  paid  "  out  of  the  estate  "  before  distribution,  declared  that 
it  should  "be  due  one  year  after  the  decedent's  death,"  charged  the 
executor  or  administrator  with  the  duty  of  pacing  it,  and  declared 
that  the  receipt  therefor  should  entitle  him  to  a  credit  for  the  amount 

'  Ch.  46.?.  Title  TT.  39  Stat.,  777;  ch.  1.50.  Title  TIT.  30  Stat.,  10n2:  ch.  63, 
Title  IX,  40  Stat.,  324. 


470  UNITED  STATES  V.    WOODWARD.  [ciIAP.   VII. 

in  the  usual  settlement  of  his  accounts.  Under  that  act  these  execu- 
tors were  required  to  pay  an  estate  tax  of  $489,834:. OT.  The  tax  be- 
came due  December  15,  1918,  and  they  paid  it  February  8,  1919. 
Shortly  thereafter  the  executors  made  a  return,  under  the  revenue 
act  of  1918,'  of  the  income  of  the  testator's  estate  for  the  taxable 
year  1918  and  claimed  in  the  return  that  in  ascertaining  the  net  in- 
come for  that  year  the  estate  tax  of  $489,83-1.07  should  be  deducted. 
The  Commissioner  of  Internal  lievenue  refused  to  allow  the  deduc- 
tion and  assessed  an  income  tax  of  $165,075.78  against  the  estate. 
Had  the  deduction  been  allowed  there  would  have  been  no  taxable 
net  income  for  that  year  and  no  part  of  the  $165,075.78  would  liave 
been  collectible.  Payment  of  that  sum,  as  so  assessed,  was  pressed  on 
the  executors  and  they  paid  it  under  duress.  Then  after  taking  the 
necessary  steps  to  entitle  them  to  do  so,  they  brought  this  suit  in  the 
Court  of  Claims  to  recover  the  money  thus  exacted  from  them. 

The  sole  question  for  decision  is,  was  the  estate  tax  paid  by  the 
executors,  and  claimed  by  them  as  a  deduction  in  the  income  tax 
return  for  the  year  1918,  an  allowable  deduction  in  ascertaining  the 
net  taxable  income  of  the  estate  for  that  year  ?  The  Court  of  Claims 
held  that  it  was. 

The  solution  of  the  question  turns  entirely  upon  the  statutory 
provisions  under  which  the  two  taxes  were  severally  collected.  The 
act  of  1918,  by  sections  210,  311,  and  219,  subjects  the  net  income 
"received  by  estates  of  deceased  persons  during  the  period  of  ad- 
ministration of  settlement"  to  an  income  tax  measured  by  fixed 
percentages  thereof;  by  sections  213  and  319  requires  that  the  net 
income  be  ascertained  by  taking  the  gross  income,  as  defined  in  section 
213,  and  making  the  deductions  named  in  section  214,  and  by  section 
214  makes  express  provision  for  the  deduction  of  "  taxes  paid  or 
accrued  within  the  taxable  year  imposed  (a)  by  the  authority  of  the 
United  States,  except  income,  war-profits  and  excess-profits  taxes." 
This  last  provision  is  the  important  one  here.  It  is  not  ambiguous, 
but  explicit,  and  leaves  little  room  for  construction.  The  wordsof  its 
major  clause  are  comprehensive  and  include  every  tax  which  is 
charged  against  the  estate  by  the  authority  of  the  United  States. 
The 'excepting  clause  specifically  enumerates  what  is  to  be  expected. 
The  implication  from  the  latter  is  that  the  taxes  which  it  enumerates 
would  be  within  the  major  clause  were  they  not  expressly  excepted, 
and  also  that  there  was  no  purpose  to  except  any  others.  Estate  taxes 
were  as  well  known  at  the  time  the  provision  was  framed  as  the  ones 
particularly  excepted.  Indeed,  the  same  act,  by  sections  400-410, 
expressly  provides  for  their  continued  imposition  and  enforcement. 
Thus  their  omission  from  the  excepting  clause  means  that  Congress 
did  not  intend  to  except  them. 

The  act  of  1916  calls  the  estate  tax  a  "tax"  and  particularly  de- 
nominates it  an  "  estate  tax."  This  court  recently  has  recognized  that 
it  is  a  duty  or  excise  and  is  imposed  in  the  exertion  of  the  taxing  power 
of  the  United  States.    New  York  Trust  Co.  v.  Eisner  (  —  U.  S.  —  ). 

1  Ch.  18   Title  TT,  §§  210-214,  219.  1405,  40  Stat.,  1062-1067,  1071,  1151. 


SEC'l'.  n.  J    UNITKD  STATKS  V.    AETNA  LIFK  JXSUKANCE  CO.   471 

It  is  made  a  charge  on  the  estate  and  is  to  be  paid  out  of  it  hy  tlie 
administrator  or  executor  substantially  as  (jtlier  taxes  and  ciiarges 
are  paid.  It  becomes  due  not  at  tlie  time  of  the  decedent's  dcatli,  as 
suggested  by  counsel  for  the  (iovcrnment,  Imt  one  year  thereafter, 
as  the  statute  phiinly  provides.  It  does  not  segregate  any  part  of 
the  estate  from  the  rest  and  keep  it  i'njm  passing  to  the  administrator 
or  executor  for  purposes  of  administration,  as  counsel  contend,  but 
is  made  a  general  charge  on  the  gross  estate  and  is  to  be  paid  in 
money  out  of  any  available  funds  or,  if  there  be  none,  by  converting 
other  proi)erty  into  money  for  the  purpose. 

Here  the  estate  tax  not  oidy  '^  accrued,"  which  means  became  due, 
during  (lie  taxable  year  of  1!)18,  but  it  was  paid  before  the  income 
for  that  year  was  returned  or  rcipiired  to  be  returned.  When  the  re- 
turn was  made  the  executors  claimed  a  deduction  by  reason  of  that 
tax.  We  hold  that  under  the  terms  of  the  act  of  l!)i8  the  deduction 
should  have  been  allowed. 

Judgment  affirmed. 


UNITED  STATKS  v.  AETNA  LIFE  INSURANCE  CO. 

United  States  Distkict  Col'rt.     1010. 
[Reported  260  Fed.  333.] 

Garvix^  J.  This  action  is  submitted  to  the  court  for  determi- 
nation upon  an  agreed  state  of  facts.  It  appears  that  the  defend- 
ant, an  insurance  company  incorporated  under  the  laws  of  the  State 
of  Connecticut,  was  subject  to  pay  annually  during  the  years  1909, 
1910,  and  1911,  with  respect  to  the  carrying  on  and  doing  of  its 
business,  the  excise  tax  imposed  by  section  88  of  the  act  of  Congress 
approved  August  5,  1909,  and  was  subject  in  all  respects  to  the  pro- 
visions of  that  section. 

On  or  before  March  1  in  each  of  these  ^ears  the  defendant  dulv 
made  its  return  to  the  collector  of  internal  revenue  in  the  proper 
district  in  the  form  prescribed  by  the  Commissioner  of  Internal  Rev- 
enue as  required  by  said  section,  which  returns  showed  that  the  net 
income  of  the  defendant  for  each  of  these  throe  years  exceeded  $5,000. 

On  or  about  June  1  of  the  years  1910,  1911,  and  1912  an  excise 
tax  under  said  act  was  duly  assessed  against  the  defendant  for  the 
years  ending  Docend)er  31,  1909.  1910,  and  1911,  respectively,  said 
tax  being  1  per  cent  on  the  net  income  of  the  defendant.  The  tax 
was  in  each  case  paid  as  assessed. 

When  the  defendant  filed  its  return  showinsr  its  net  income  for  the 
year  ending  December  31,  1909,  it  deducted  $479,025  as  "taxes  paid 
during  the  year  ending  December  31,  1909,  imposed  under  authority 
of  the  United  States  or  States  and  Territories  thereof.'"  Of  this  sum 
it  is  conceded  that  $109,907.30  was  lawfully  deducted.  It  is  claimed 
by  the  plaintiff  that  defendant  should  also  have  paid  a  tax  of  1  per 
cent  on  the  remainder.  $09,037.64,  i.  e.,  $690.50.  Of  the  latter  sum 
defendant  admits  liability  to  the  extent  of  $227.62,  leaving  $468.96 


472       UNITED  STATES   I'.  AETNA  LIFE  INSUEANCE  CO.      [CHAP.  VII. 

in  dispute.  The  amount  admitted  for  1910  is  $343.17,  $413.41 
being  in  dispute.  For  1911,  $543.28  is  admitted,  $527.60  being  in  dis- 
pute. These  sums  in  dispute  represent  taxes  paid  by  various  corpora- 
tions upon  shares  of  their  stock  o^vned  by  defendant,  which  taxes 
were  imposed  during  the  several  years  1909,  1910,  and  1911  by  the 
State  of  Connecticut  imder  chapter  54  of  the  public  acts  of  1905. 

The  deductions  allowed  a  corporation  by  the  act  of  August  5,  1909, 
include  "  all  sums  paid  by  it  within  the  year  for  taxes  imposed  under 
authority  of  the  United  States  or  of  any  State  or  Territory  thereof, 
or  imposed  by  the  Government  of  any  foreign  country  as  a  condition 
to  carry  on  business  therein."  The  taxes  in  question  were  not  paid 
by  the  defendant,  but  in  its  behalf  by  other  corporations. 

While  it  is  true  that  "a  statute  providing  for  the  imposition  of 
taxes  is  to  be  strictly  construed,  and  all  reasonable  doubts  in  respect 
thereto  resolved  against  the  Government  and  in  favor  of  the  citi- 
zen"  (Mutual  Benefit  Life  Insurance  Co.  i'.  Herold,  198  Fed.  199, 
and  cases  therein  cited),  no  doubtful  meaning  is  here  involved.  The 
language  of  the  act  is  clear  and  explicit.  The  allowable  deductions 
in  the  case  of  a  domestic  corporation  are  plainly  set  forth. 

Deductions  allowed  from  gross  income  in  the  case  of  a  domestic 
corporation : 

Second.  Such  net  income  shall  be  ascertained  by  deducting  from 
the  gross  amount  of  the  income  of  such  corporation,  joint  stock 
company  or  association,  or  insurance  company,  received  within  the 
year  from  all  sources 

(First)  all  the  ordinary  and  necessary  expenses  actually  paid 
within  the  year  out  of  income  in  the  maintenance  and  operation  of 
its  business  and  properties,  including  all  charges  such  as  rental  or 
franchise  payments,  required  to  be  made  as  a  condition  to  the  con- 
tinued use  or  possession  of  property; 

(Second)  all  losses  actually  sustained  within  the  year  and  not 
compensated  by  insurance  or  otherwise,  including  a  reasonable  al- 
lowance for  depreciation  of  property,  if  any,  and  in  the  case  ot  in- 
surance companies  the  sums  other  than  dividends,  paid  within  the 
year  on  policy  and  annuity  contracts  and  the  net  addition,  if  any, 
required  by  law  to  be  made  within  the  year  to  reserve  funds ; 

(Third)  interest  actually  paid  within  the  year  on  its  bonded  or 
other  indebtedness  not  exceeding  the  paid-up  capital  stock  of  such 
corporation,  Joint  stock  company  or  association,  or  insurance  com- 
pany, outstanding  at  the  close  of  the  year,  and  in  the  case  of  a  bank, 
banidng  association  or  trust  company,  all  interest  actually  paid  by  it 
within  the  year  on  deposits; 

(Fourth)  all  sums  paid  by  it  within  the  year  for  taxes  imposed 
under  the  authority  of  the  United  States  or  of  any  State  or  Territory 
thereof,  or  imposed  by  the  Government  of  any  foreign  country  as  a 
condition  to  carry  on  business  therein ; 

(Fifth)  all  amounts  received  by  it  within  the  year  as  dividends 
upon  stock  of  other  corporations,  joint  stock  companies  or  associa- 
tions, or  insurance  companies,  subject  to  the  tax  hereby  imposed. 


SECT.   IV.]       UNITED  STATES   V.   AETNA  LIFE   INSURANCE   CO.       473 

If  it  had  been  the  intention  to  permit  such  a  deduction  as  defend- 
ant urges,  the  act  would  have  provided  timt  there  be  included  '*  all 
sums  paid  by  it  or  in  its  behalf  within  the  year." 

Defendant  relies  upon  a  decision  by  the  Treasury  Department 
rendered  March  24:,  1916,  reading  in  part: 

You  are  advised  that  when  a*  corporation  pays  taxes  for  its  stock- 
holders, such  payments  represent  a  portion  of  the  earnings  of  the  cor- 
poration, which  instead  of  being  distributed  to  the  stockholders  in  the 
form  of  dividends  is  used  in  payment  of  taxes  which  the  stockholders 
individually  owe.  Should  you  instead  of  paying  the  taxes,  pay  over 
this  sum  to  the  stockholders,  the  stockholders  would  be  required  to 
return  the  amount  as  income  received,  and  would  then  be  entitled 
to  deduct  the  same  under  the  item  of  taxes  paid  during  the  year. 
Under  the  excise  tax  law  a  stockholder  which  is  a  corporation  is  en- 
titled to  deduct  from  gross  income  all  dividends  received  from  an- 
other corporation  subject  to  tax,  and  therefore  is  entitled  to  deduct 
as  a  dividend  that  portion  of  the  earnings  of  the  corporation  in 
which  it  owns  stock,  which  is  represented  by  the  stockholder's  tax. 
For  the  years  1909  to  1912,  inclusive,  therefore,  the  corporation 
which  is  a  stockholder  will  be  entitled  to  an  additional  deduction  on 
account  of  the  taxes  paid  for  it  by  the  corporation  issuing  the  stock, 
for  the  reason  that  it  produces  the  same  result  as  if  the  corporation 
owning  the  stock  was  required  to  return  as  income  for  these  years 
the  full  amount  of  the  dividend,  including  that  portion  of  the  divi- 
dend diverted  to  pay  tax,  and  then  took  credit  as  a  deduction  for 
this  entire  amount  under  the  item  of  dividends  received  from  other 
corporations,  and  also  took  credit  for  the  amount  of  taxes  paid  imder 
that  item.  Under  the  income-tax  law,  however,  a  corporation  is 
not  entitled  to  deduct  from  gross  income  dividends  received  from 
other  corporations.  Consequently  if  it  claims  the  benefit  of  deduct- 
ing from  gross  income  taxes  paid  for  it  by  another  corporation  it 
must  include  such  amount  in  income  as  the  deduction  counterbal- 
ances the  receipt.  As  you,  the  stockholder  in  this  case,  did  not  re- 
turn as  income  the  amount  in  question,  you  are  not  entitled  under 
the  income-tax  law  to  deduct  the  same.  The  claim  on  account  of  the 
tax  assessed  for  the  year  1913  is  accordingly  rejected,  and  you  will 
find  inclosed  notice  of  demand  for  payment  of  this  tax. 

The  claim  for  the  abatement  of  the  additional  tax  assessed  for 
1912  has  received  favorable  consideration  for  the  reason  above 
stated. 

This  decision  points  out  that  a  corporation  making  a  claim  such 
as  is  advanced  by  defendant  must  have  included  in  its  return  as 
income  the  taxes  which  were  paid  in  its  behalf  by  other  corporations. 
No  such  return  was  made  by  defendant  herein,  therefore  the  decision 
is  not  in  point  even  if  it  were  controlling  on  the  court. 

There  was  no  refusal  or  neglect  to  make  a  return  within  the  mean- 
ing of  the  act  and  therefore  no  penalty  will  be  allowed. 

Judgment  for  plaintiff  for  $2, 524-0 Jf,  with  interest  from  June 
9,  1915. 


474  MENTE    V.    EISNER.  [cHAP.  VII. 

MENTE  V.  EISNER. 
Circuit  Court  of  Appeals.     1920. 

[Reported  266  Fed.  161.] 

Ward,  Circ.  J.  Section  II,  subdivision  2  B,  of  the  act  of  Oc- 
tober 3,  1913,  provides  that  in  computing  net  income  for  purposes 
of  normal  tax  there  shall  be  allowed  as  a  deduction  "...  Fourth: 
Losses  actually  sustained  during  the  year,  incurred  in  trade  or  aris- 
ing from  fires,  storms,  or  shipwreck  and  not  compensated  for  by  in- 
surance or  otherwise." 

Mente,  a  member  of  the  firm  of  Mente  &  Co.,  engaged  in  the  busi- 
ness of  manufacturing  jute  bags,  and  bagging,  cotton  bags,  and 
materials  for  covering  cotton  bales,  filed  his  income  returns  for  the 
year  March  1  to  December  31,  1913,  and  for  the  whole  year  of  1914. 
He  had  for  some  three  years  been  buying  and  selling  cotton  on  the 
cotton  exchange  for  his  individual  account,  in  no  way  connected  with 
the  business  of  Mente  &  Co.,  and  he  deducted  from  his  gross  income 
in  each  year  losses  sustained  in  the  year  resulting  from  these  trans- 
actions as  "  losses  incurred  in  trade." 

Eisner,  as  collector  of  internal  revenue  for  the  third  district  of 
the  State  of  ISTew  York,  assessed  an  additional  tax  upon  these  de- 
ductions, which  Mente  paid  under  protest,  taking  an  appeal  to  the 
Commissioner  of  Internal  Eevenue  under  sections  3220  and  3228, 
United  States  Eevised  Statutes,  and  the  regulations  of  the  Secretary 
of  the  Treasury  in  pursuance  thereof,  who  rejected  his  claim. 
Thereupon  j\Iente  began  this  action  against  Eisner,  as  collector,  to 
recover  the  amounts  so  paid  with  interest  and  costs. 

T.  D.  2090,  dated  October  14,  1914,  reads: 

Loss,  to  be  deductible,  must  be  an  absolute  loss,  not  a  speculative 
or  fluctuating  valuation  of  continuing  investment,  but  must  be  an 
actual  loss,  actually  sustained  and  ascertained  during  the  tax  year  for 
which  the  deduction  is  sought  to  be  made.  It  must  be  incurred  in  trade 
and  be  determined  and  ascertained  upon  an  actual,  a  completed,  a 
closed  transaction.  The  term  "  in  trade  "  as  used  in  the  law  is  held 
to  mean  the  trade  or  trades  in  which  the  person  making  the  return 
is  engaged ;  that  is,  in  which  he  has  invested  money  otherwise  than 
for  the  purpose  of  being  employed  in  isolated  transactions,  and  to 
which  he  devotes  at  least  a  part  of  his  time  and  attention.  A  person 
may  engage  in  more  than  one  trade  and  may  deduct  losses  incurred 
in  all  of  them,  provided  that  in  each  trade  the  above  requirements 
are  met.  As  to  losses  on  stocks,  grain,  cotton,  etc.,  if  these  are  in- 
curred by  a  person  engaged  in  trade  to  which  the  buying  and  selling 
of  stocks,  etc.,  are  incident  as  a  part  of  the  business,  as  by  a  member 
of  a  stock,  grain,  or  cotton  exchange,  such  losses  may  be  deducted. 
A  person  can  be  engaged  in  more  than  one  business,  but  it  must  be 
clearly  shown  in  such  cases  that  he  is  actually  a  dealer,  or  trader,  or 
manufacturer,  or  whatever  the  occupation  may  be,  and  is  actually 
engaged  in  one  or  more  lines  of  recognized  business,  before  losses 


SECT.    IV.]  COHEN   V.   LOWE.  475 

can  be  claimed  witli  respect  to  either  or  more  than  one  line  of  busi- 
ness, and  his  status  as  sucii  dealer  must  be  clearly  established. 

Both  parties  havin<(  moved  for  the  direction  of  a  verdict,  Judge 
Grubb  directed  a  verdict  in  favor  of  the  defendant. 

"We  think  that  the  language  "losses  incurred  in  trade"  is  cor- 
rectly construed  by  the  Treasury  Department  as  meaning  in  the 
actual  business  of  the  taxpayer  as  distinguished  from  isolated  trans- 
actions. If  it  had  been  intended  to  permit  all  losses  to  be  deducted 
it  would  have  been  easy  to  say  so.  Some  effect  must  be  given  to  the 
words  "in  trade." 

There  is  an  inconsistency  in  making  profits  derived  from  such 
transactions  a  part  of  the  taxpayer's  gross  income  and  on  the  other 
hand  allowing  him  no  deduction  for  losses.  But  tax  laws  are  not 
required  to  be  perfect  or  even  consistent.  It  must  be  determined 
from  the  facts  in  each  case  whether  or  not  the  losses  claimed  to  be 
deducted  have  been  incurred  in  a  business. 

In  this  case  the  court  must  be  taken  to  have  found  as  a  matter  of 
fact  that  these  transactions  in  IK  13  and  1914  did  not  constitute  a 
business.     Such  a  finding  is  binding  upon  us. 

Judgment  affirmed. 


COHEN  V.  LOWE. 
United  States  District  Court.     1916. 

[Reported  234  Fed.  474.] 

Grubb,  J.  Gentlemen  of  the  jury,  this  is  an  action  by  the 
plaintiff,  Mr.  Cohen,  who  has  paid  the  income  tax  for  the  year  1913, 
to  the  Government  on  the  Government  basis,  and  claims  that  he 
paid  in  excess  of  what  the  law  would  have  required  him  to  pay,  and, 
therefore,  has  brought  this  suit  to  recover  back  the  excess. 

There  are  three  items  on  which  he  claims  he  overpaid  the  Govern- 
ment when  he  made  the  payment  on  the  income  tax;  two  of  them 
are  matters  of  law  as  to  which  there  is  no  question  of  fact,  and  which 
do  not  require  consideration  of  the  jury  at  all,  but  require  the  de- 
cision of  the  court  without  a  jury;  the  other  one  depends  upon  a 
question  of  fact,  and  not  upon  a  (question  of  law,  and  is  therefore 
properly  determinable  by  a  jury,  with  instructions  from  the  court. 

The  plaintiff  is  suing  to  recover  that  excess  from  the  Government, 
having  already  paid  the  tax  under  protest.  The  item  which  requires 
your  decision  relates  to  the  amount  of  depreciation  in  the  building 
that  he  owned  at  No.  320  West  Eighty-fourth  Street  during  the  tax 
year  of  1913.  The  law  requires  him  to  pay  a  tax  on  the  net  income 
derived  from  that  building,  and  it  allows  him,  as  a  deduction  from 
the  amount  of  net  income  which  he  receives,  among  other  things, 
this  deduction : 

A  reasonable  allowance  for  the  exhaustion,  wear,  and  tear  of 
property  arising  out  of  its  use  or  employment  in  the  business,  not 


476  COHEN  V.    LOWE.  [CHAP.    VII. 

to  exceed,  in  the  case  of  mines,  5  per  cent  of  the  gross  vahie,  at  the 
mine,  of  the  output  for  the  year  for  which  the  computation  is  made, 
but  no  deduction  shall  be  made  for  any  amount  of  expense  of  re- 
storing property  or  making  good  the  exhaustion  thereof,  for  which 
an  allowance  is  or  has  been  made. 

So  the  question  to  be  submitted  to  you  for  decision  arises  under 
the  provision  of  law  allowing  that  deduction. 

There  is  no  question  that  the  plaintiff  was  entitled  to  a  deduction 
for  wear  and  tear  of  this  building,  and  the  Government  allowed  him, 
I  believe,  3  per  cent  —  he  claims  5  per  cent  —  and  the  question  for 
you  to  determine  is  whether  he  is  entitled  to  any  greater  allowance 
for  depreciation  over  and  above  what  the  Government  allowed  him, 
which  is  3  per  cent. 

The  burden  would  be  upon  him  reasonably  to  satisfy  you  from  the 
evidence  that  he  Avas  entitled  to  an  allowance  of  an  amount  greater 
than  3  per  cent  in  order  to  obtain  that  allowance  because,  as  I  say, 
he  is  the  plaintiff  asserting  the  claim.  You  will  see  from  the  lan- 
guage of  the  law  itself  that  the  allowance  is  for  wear  and  tear  when 
it  relates  to  a  building  and  exhaustion  when  it  relates  to  mines  or 
property  of  that  kind,  but  wear  and  tear  when  it  relates  to  a  build- 
ing; that  means  the  physical  deterioration  that  a  building  suffers 
during  the  tax  year;  it  does  not  include  the  depreciation  in  value 
due  to  a  loss  in  rental  value,  because  of  modern  buildings  going  up 
ivitli  better  facilities  than  the  old  building'  had;  that  is  not  the  idea. 

The  idea  is  the  amount  of  physical  loss  or  deterioration  that  the 
building  suffers  during  the  tax  year  —  that,  of  course,  is  a  narrow 
question.  It  depends  upon  what  you  believe  would  be  the  life  of 
the  building,  the  length  of  life,  the  number  of  years  that  the  build- 
ing would  remain  in  a  condition  to  be  habitable  for  the  uses  for 
which  it  was  constructed,  not  merely  how  many  years  it  would 
stand  without  being  condemned  and  torn  down,  but  how  many  years, 
in  your  judgment  from  the  evidence,  it  would  remain  so  as  to  be 
habitable  for  the  general  purposes  for  which  it  was  constructed  — 
that  is,  in  this  case,  for  use  as  an  apartment  house.  That  would  l)e 
the  life  of  the  building,  and  when  you  arrive  at  that  you  could 
readily  ascertain  the  amount  of  annual  depreciation  that  the  build- 
ing would  suffer,  because  it  would  be  fair  to  assume  that  the  de- 
terioration would  have  accrued  over  the  life  of  the  building,  and  the 
average  amount  of  deduction  each  year  for  depreciation  would  cover 
the  annual  percentage. 

The  parties  have  agreed  that  you  might  render  your  verdict  in  the 
form  of  a  special  verdict;  that  is,  by  determining  what,  if  any,  per- 
centage over  and  above  the  3  per  cent  the  plaintiff  is  entitled  to  for 
depreciation.  If  he  has  not  reasonably  satisfied  you  from  the  evi- 
dence that  he  is  entitled  to  any  percentage  over  the  3  per  cent,  then 
you  can  just  bring  in  a  verdict  on  that  issue  for  the  defendant,  the 
Government,  because  they  have  already  allowed  him  3  per  cent.  If 
you  are  reasonably  satisfied  from  the  evidence  that  the  plaintiff  is 
entitled  to  more  than  3  per  cent,  then  the  parties  have  agreed  that 


SECT.  IV.]  COHEN  V.  LOWE.  477 

you  should  render  a  verdict  for  the  plaintiff  in  the  form  of  per- 
centage; that  is,  what  percentage  it  would  be  over  3  per  cent  that 
you  lind  the  plaiutill'  is  cJitilled  to,  and  your  verdict  in  that  event 
might  be  at  any  ligure  between  :i  and  5  per  cent.  It  is  admitted 
that  the  plaintitt'  claims  only  5  per  cent. 

So  you  are  to  determine  here  two  questions:  Jn  the  first  place, 
whether  there  is  any  excess  pver  3  per  cent  allowable  for  the  build- 
ing during  the  tax  year  of  1IU3.  If  you  fail  to  be  reasonably  satis- 
fied from  the  evidence  that  there  is  any  excess,  then  you  will  return 
a  verdict  for  the  CJovernment,  the  defendant  in  this  case.  If  you  are 
reasonably  satisfied  from  the  evidence  that  the  allowance  made  by 
the  CJovernment  was  too  small,  then  it  would  be  your  duty  to  return 
a  verdict  indicating  what  your  belief  from  the  evidence  is  as  to  the 
proper  rate  of  depreciation  which  should  be  allowed  him,  if  it  should 
be  in  excess  of  3  per  cent,  and  return  that  verdict. 

As  I  say,  it  is  conceded  that  the  plaintiff  does  not  claim  he  is 
entitled  to  more  than  5  per  cent  for  depreciation ;  the  law  itself 
mentions  5  per  cent,  but  that  only  relates  to  exhaustion  of  mines  by 
taking  the  ore  out  of  it;  it  has  no  limitation  or  effect  on  this  question 
of  depreciation  on  a  structure. 

As  to  the  evidence,  you  heard  the  testimony  read  to  you  of  the 
two  witnesses,  ifr.  Kempner  and  Mr.  Cohen,  the  plaintiff,  and  you 
heard  ^Ir.  Garbor,  a  witness  for  the  Government,  testify  orally. 
Those  are  the  witnesses  whose  testimony  you  are  to  consider  as  re- 
lating to  the  question  of  the  amount  of  depreciation  properly  allow- 
able for  the  use  of  this  building  during  the  tax  year  of  1913.  Look 
at  them  with  the  idea  of  making  up  your  proper  judgment  as  to 
wliat  the  life  of  the  building  would  be,  in  years,  and  how  much,  on 
that  basis,  it  would  be  proper  to  allow  each  year  for  depreciation 
and  when  you  arrive  at  that  you  have  arrived  at  the  matter  sub- 
mitted to  you  for  your  decision. 

I  have  some  requests  to  charge  which  I  will  read  to  you  along  with 
■what  I  have  already  said,  they  being  part  of  the  law  of  the  case. 
These  requests  are  asked  by  the  Government : 

You  are  instructed  that  the  only  deduction  for  depreciation  of  this 
building  to  which  plaintiff  is  entitled  on  his  income-tax  return  is 
a  reasonable  allowance  for  the  exhaustion,  wear,  and  tear  of  the 
building,  arising  out  of  its  use  as  an  apartment  house,  and  no  de- 
duction shall  be  made  for  any  amount  of  expense  of  restoring  the 
building,  or  making  good  the  exhaustion  thereof,  for  which  an  al- 
lowance is  otherwise  made  by  you,  or  has  already  been  made  by  the 
Oommissioner  of  Internal  Revenue;  5'ou  shall  allow  no  deduction 
for  any  amount  paid  out  for  permanent  improvements  or  better- 
ments made  to  increase  the  value  of  the  building. 

Of  course,  what  he  has  spent  out  for  repairs,  he  has  already  taken 
off  by  only  returning  the  net  income,  so  that  that  naturally  is  not 
considered  under  this  deduction,  which  is  an  additional  deduction 
after  the  net  income  is  arrived  at. 

You  are  furtlier  instructed  that  the  words  '^  exhaustion,  wear,  and 
tear  of  the  building,  arising  out  of  its  use  as  an  apartment  house," 


47S       ^^ASHVILLE,  CHATTAXOOGA  &  ST.  L.  BY.  V.  U.  S.        [ciIAP.  VII, 

contemplate  only  depreciation  of  the  physical  property  itself,  irre- 
spective of  outside  inlluences  on  its  value,  or  its  adaptability  to  the 
use  originally  intended,  or  to  the  environments  in  which  it  finds 
itself  after  a  period  of  years. 

You  are  further  instructed  that  plaintiff  is  not  entitled  to  any 
allowance  for  depreciation  by  reason  of  the  decrease  in  the  rental 
value  of  the  building  or  by  reason  of  a  decrease  in  the  income  de- 
rived therefrom. 

You  are  further  instructed  that  plaintiff  is  not  entitled  to  any 
allowance  for  depreciation  by  reason  of  the  decrease  in  the  value  of 
the  building,  arising  from  its  lack  of  modern  improvements  and 
from  its  antiquity  in  that  respect  caused  by  the  advance  in  the  art 
of  constructing  apartment  buildings  with  modern  and  up-to-date 
improvements,  arrangements,  and  conveniences. 

Mr,  Matthews,  1  would  also  ask  your  honor  to  instruct  the 
jury  that  it  is  to  be  assumed  in  this  case,  since  the  ordinary  wear 
and  tear  improvements  were  made  to  the  building  in  1913,  that  such 
would  be  the  case  throughout  its  life. 

The  Couet.  I  think  that  is  true,  gentlemen  of  the  jury.  The 
life  of  the  building  is  to  be  measured  upon  the  basis  of  the  owner 
of  the  building  keeping  it  in  proper  repair  during  the  future  as  well 
as  during  the  tax  year. 

Just  return  your  verdict  in  the  shape  of  a  percentage  you  agree 
on,  if  any,  over  and  above  the  3  per  cent ;  if  you  do  not  agree  to  any 
percentage  above  3  per  cent,  then  just  bring  in  your  verdict  for  the 
defendant. 

Take  the  case,  gentlemen. 

(Whereupon  the  jury  retired,  and  rendered  a  verdict  in  favor  of 
the  defendant.) 

Mr.  Kaye.  I  should  just  like  to  ask  the  question  whether  the 
jury  considers  3  per  cent  an  adequate  allowance. 

The  Foeemax  of  the  Juey.    Yes,  sir. 


NASHVILLE,  CHATTAXOOGA  &  ST.  LOUIS  EAILWAY 
CO.  V.  UKITED  STATES. 

ClECUIT  CoUET  OF  APPEALS.       1920, 
[Reported  269  Fed.  351.] 

Knappen-,  Circ.  J.  This  case  is  before  this  court  a  second 
time.  In  substance  it  is  this:  In  June,  1916,  the  United  States, 
under  the  direction  of  its  Commissioner  of  Internal  Revenue, 
brought  suit  to  recover  from  defendant  an  excise  tax  of  1  per  cent 
claimed  to  be  due  from  it  for  each  of  the  years  1909  and  1910,  under 
section  38  of  the  revenue  act  of  August  5,  1909  (36  Stat,  11,  112, 
ch.  6),  which  makes  every  corporation  to  which  it  applies  "subject 
to  pay  annually"  a  special  excise  tax  of  1  per  cent  on  its  net  income, 
to   be   determined   by   deducting  from  gross  income,   among   oilier 


SECT.  IV.]       NASHVILLE,  CIIATTANOOGA  «fe  ST.  L.  EY.  V.  U.  S.  479 

things,  operating  expenses,  losses  sustained,  "  including  a  reasonable 
allowance  for  depreciation  of  property,"  interest  on  indebtedness, 
and  taxes.  The  declaration  alleged  the  filing  by  defendant  with  the 
Commissioner  of  Internal  Keveiiue,  on  February  25,  1910,  and  Feb- 
ruary 21,  1911,  respectively,  of  returns  of  its  net  income  for  the 
respective  years  1909  and  1910;  that  both  returns  were  incorrect  as 
to  the  amount  of  defendant's  income,  that  for  1909,  in  that  it  in- 
cluded, as  an  item  of  deduction  from  gross  income,  an  alleged  charge 
of  $'^6,000  to  expenses,  which  was  not  a  necessar}  expense  actually 
paid  out  of  income  in  the  maintenance  and  operation  of  its  business 
and  properties;  those  for  both  years,  in  tiiat  thev  included  charges 
to  depreciation  of  roadway  amounting  to  $249,0"24.5-±  for  the  year 
1909  and  $239,229. TO  for  the  year  1910,  which  were  not  charged 
against  the  capital  valuation  of  the  roadway  on  its  books  and  were 
not  reasonable  allowances  for  depreciation  of  roadway  within  the 
meaning  of  the  act;  that  the  three  items  named  were  disallowed  by 
the  Commissioner  of  Internal  Kevenue  and  held  by  him  to  be  in- 
correctly charged ;  and  that  they  were  in  fact  not  correct  and  proper 
deductions  from  gross  income;  and  tliat  the  total  amounts  so  de- 
ducted, which  should  have  been  included  as  net  income  in  said  re- 
turns, were  for  the  year  1909  $275,024.54  and  for  1910  $239,229.70; 
that  the  defendant  was  thus  indebted  to  the  United  States  and  sub- 
ject to  pay  an  income  tax  of  1  per  cent  upon  the  amounts  stated; 
that  it  had  failed  and  refused  to  make  payment  and  that  the  alleged 
taxes  were  thus  due  from  defendant  and  payable  by  it  to  the  United 
States. 

The  railway  company  demurred  to  the  declaration  upon  grounds, 
so  far  as  now  important,  (a)  that  the  Government  could  not  recover 
an  excise  tax  in  advance  of  an  assessment  by  the  Commissioner  of 
Internal  Eevenue,  and  (b)  that  the  railway  company,  having  made 
its  returns  and  paid  the  assessments  made  by  the  commissioner, 
could  be  made  subject  to  no  further  obligation  unless  the  commis- 
sioner should  discover  some  item  to  be  false  within  three  years  from 
March  1  of  the  year  succeeding  the  calendar  year  for  which  the  re- 
turn is  made.  The  trial  court  sustained  the  demurrer.  This  court 
reversed  that  action,  and  remanded  the  case  for  further  proceedings 
and  trial  (249  Fed.  678).  The  railway  company  then  pleaded  nil 
debet  to  each  of  the  two  counts  of  the  declaration,  together  with 
special  pleas  to  each  count,  raising  the  identical  questions  which  had 
before  been  presented  by  its  demurrer  to  the  Government's  declara- 
tion. The  Government's  demurrers  to  these  special  pleas  were 
sustained  by  the  District  Court,  on  the  authority  of  this  court's  de- 
cision. Upon  trial  by  jury  there  were  verdict  and  judgment  against 
the  railway  company  for  $5,142.50,  being  1  per  cent  upon  the 
amount  of  the  three  items  in  question.  This  writ  is  to  review  that 
judgment. 

1.  Upon  the  present  hearing,  counsel  for  the  railway  company  in 
support  of  its  special  pleas,  overruled  below,  has  again  argued  at 
great  length  the  questions  presented  to  and  considered  by  this  court 
under  defendant's  demurrer  to  the  Government's  declaration.     All 


480       NASHVILLE,  CHATTANOOGA  &  ST.  L.  RY.  V.  U.  S.        [ciIAP.  VII. 

of  these  questions,  which  relate  equally  to  the  special  pleas,  were, 
upon  careful  consideration,  decided  by  this  court  against  defendant's 
contention.  It  is  unnecessary  here  to  repeat  the  grounds  of  that  de- 
cision, which  suflBciently  appear  from  our  published  opinion  (249 
Fed.  678).  The  argument  now  advanced  sheds  no  additional  light 
upon  the  subject.  We  content  ourselves  with  saying  that  we  find  no 
reason  to  depart  from  our  former  conclusions.  The  assignments  of 
errors  numbered  1  to  5,  inclusive,  are  accordingly  overruled. 

2.  The  remaining  assignments  relate  to  the  refusal  to  direct  ver- 
dict for  defendant,  to  the  charge  as  given,  and  to  the  refusal  of 
certain  of  defendant's  requested  instructions.  A  consideration  of  the 
criticisms  relating  to  the  charge  will  aid  in  determining  whether 
there  was  a  case  for  the  jury. 

Defendant  conceded  on  the  trial  that  the  deduction  of  the  $26,000 
item  in  its  return  for  1909  was  not  authorized.  The  court  accord- 
ingly properly  instructed  that  tlie  Government  was  entitled  to  a 
verdict  for  at  least  $260.00  on  this  account.  The  substance  of  the 
charge  otherwise  was  that  the  question  of  fact  to  be  determined  was 
merely  whether  the  deductions  made  by  defendant  in  its  excise 
tax  reports  for  the  years  1909  and  1910,  viz,  $249,024.54  for  the 
former  year,  and  $239,229.70  for  the  latter  year,  were  in  whole  or 
in  part' reasonable  allowances  for  depreciation  of  roadway  during 
those  respective  years;  that  if  such  allowances  were  reasonable  the 
Government  is  not  entitled  to  recover ;  that  if  they  were  not  reason- 
able the  Government  was  entitled  to  a  verdict  for  1  per  cent  of  tho 
amounts  improperly  deducted.  The  jury  was  specifically  instructed 
to  consider,  first,  "the  depreciation,  either  physical  or  functional, 
in  the  value  of  those  parts  of  the  roadway  which  have  not  been  re- 
paired or  renewed  or  replaced,"  and,  second,  "  what  has  been  the 
effect  of  the  repairs,  renewals  and  replacements  that  have  been  made 
to  other  parts,  and  determine  whether,  after  you  strike  a  final  bal- 
ance at  the  end  of  the  year,  the  roadway  is  of  greater  or  less  value, 
or  of  equal  value,  than  or  to  that  which  it  was  at  the  beginning  of  the 
year";  and  that  if  it  should  be  found  "that  the  value  of  the  road- 
way, its  actual  value,  is  as  great  at  the  end  of  the  year,  after  these 
repairs  and  replacements  have  been  made  for  which  credit  has  been 
given  as  an  expense  deduction,  then  there  is  no  depreciation  in  value 
of  .  .  .  the  roadway,  within  the  meaning  of  the  statute";  but  that 
"if  after  making  such  repairs,  replacements  and  renewals  in  the 
different  units  of  the  roadways  it  should  be  found  that  some  parts 
have  been  made  more  valuable  by  the  putting  in  of  new  parts  in 
place  of  worn-out  parts,  yet  the  depreciation  in  the  rest  of  the  road- 
way, in  the  deterioration,  obsolescence,  etc.,  of  other  units  which 
have  not  been  charged,  and  so  little  done  in  repairing  and  replac- 
ing that  at  the  end  of  the  year,  taking  it  as  a  whole,  the  depreciation 
in  value  has  exceeded  the  repairs,  replacements  and  renewals,  so 
that  it  is  worth  less  than  it  was  ...  to  that  extent  the  railway  is 
entitled  to  a  deduction  of  1  per  cent." 

The  first  specific  criticism  to  the  charge  is  that  depreciation  was 
made  to  depend  upon  the  relative  value  of  the  roadway  "in  dollars 


f 


SECT.   IV.]        NASHVILLE,  CIIATTAXOOfiA  A  ST.   L.  KY.  V.  U.  8.  4Sl 

and  cents  "  at  the  beginning  and  end  of  the  respective  years.  The 
contention  is  that  the  criterion  is  "  earning  power,"  "  value  for  use,'* 
not  its  value  to  an  investor.  In  point  of  fact,  the  court  difl  not  use 
the  expression  "dollars  and  cents"  in  its  charge  to  the  jury.  Its 
various  expressions  were  "  value,"  "  net  value,"  "  ac-tuiil  value," 
"  real  value,"  doubtless  meaning  intrinsic  value,  value  in  "  dollars  and 
cents"  as  distinguished  frnm  market  value,  which  defendant's  tes- 
timony showed  might  bo  all'ected  by  considerations  other  than  in- 
trinsic value. 

The  criticism  is  without  merit.  Sot  only  is  it  clear  that  market 
value  was  not  meant,  but  the  criticism  loses  all  point  through  the 
specific  admission  of  defendant's  counsel,  made  upon  the  trial, 
that  "  the  road  as  a  whole,  for  the  purpose  of  carrying  on  the  busi- 
ness of  a  common  carrier,  was  just  as  valuable  at  the  end  of  the 
year  as  at  the  beginning,"  and  by  the  equally  express  admission  of 
defendant's  chief  engineer,  not  only  to  the  same  effect  as  that  of 
counsel,  l)ut,  furtlier,  that  it  would  be  worth  as  much  to  "any  per- 
sons that  wanted  to  buy  it  for  a  railroad." 

The  further  criticism  is  made  that  "  the  court  refused  to  permit 
the  jury  to  consider  depreciation,  physical  or  functional,  in  the  units 
constituting  roadway,  track,  and  structures,"  the  argument  being 
that  "a  railroad  is  a  composite  property,  it  is  impossible  to  figure 
depreciation  of  a  road  as  a  whole  without  first  considering  deprecia- 
tion of  the  units." 

The  court,  however,  did  not  instruct  that  depreciation  of  units 
could  not  be  considered  in  determining  the  ultimate  question 
whether  there  was  not  depreciation  in  the  roadway  as  a  whole.  It 
is  true  that  after  stating  that  there  would  be  no  depreciation  if 
repairs,  renewals,  and  replacements  had  placed  the  roadway  in  the 
same  value  as  at  the  beginning  of  the  year,  it  was  said:  "In  that 
sense  you  should  not  consider  each  of  the  individual  units  that  enter 
into  the  roadway."  But  the  meaning  of  that  statement  was  made 
clear  by  the  paragrapli  immediately  following:  "It  was  not  intended 
to  have  a  system  of  bookkeeping  with  reference  to  each  particular 
crosstie  or  each  particular  rail,  but  you  should  look  to  the  value  of 
the  roadway  as  a  whoje,  comparing  its  value  at  the  beginning  of  the 
year  with  its  value  at  the  end  of  the  year."  Further  evidence  of  the 
meaning  of  the  charge  appears  from  the  later  use  of  the  term  "  net 
value";  also  by  earlier  reference  to  the  making  of  repairs,  renewals, 
and  replacements  in  the  roadway  by  "taking  out  units  that  had  de- 
cayed or  whose  usefulness  was  at  an  end  and  putting  in  others:  tak- 
ing out  crossties.  decayed  crossties,  worthless  crossties  and  putting  in 
new  crossties,  taking  out  mils  worn  out  and  putting  in  new  rails: 
repairing  and  replacing  different  units  in  its  roadways  system  from 
time  to  time  " ;  as  well  a«  by  the  instruction  that  the  jury  should 
consider  "  depreciation,  either  physical  or  functional,  in  the  value 
of  those  parts  of  the  roadway  which  have  not  been  repaired  or  re- 
newed or  replaced,  then  also  consider  what  has  been  the  efTect  of 
the  repairs,  renewals,  and  replacements  that  have  been  nuide  to 
other  parts,  and  determine  whether  after  you  strike  a  final  balance 


482       NASHVILLE,  CHATTANOOGA  &  ST.  L.  KY.  V.  U.  S.        [CHAP.  VII. 

at  the  end  of  the  year  the  roadway  is  of  greater  or  less  value,  or  of 
equal  value,  than  or  to  that  which  it  was  at  the  beginning  of  the 
year." 

The  contention  on  wliich  defendant  seems  to  rest  its  chief  criti- 
cism seems  to  be  that,  notwithstanding  the  roadway  as  a  whole  was 
intrinsically  just  as  valuable  at  the  end  of  the  year  as  at  the  begin- 
ning of  the  year,  that  is  to  say,  although  depreciation  in  given  units 
had  been  fully  overcome  by  appreciation  in  others,  the  railway  com- 
pany would  still  be  entitled  to  credit  for  depreciation  in  such  in- 
dividual units  as  had  depreciated.  We  think  this  contention  of 
defendant  not  sustained  by  reason  or  authority,  and  that  the  court 
correctly  charged  the  true  criterion.  If,  as  is  not  entirely  clear,  it 
is  meant  to  further  suggest  that  the  consideration  of  functional  (as 
distinguished  from  physical)  depreciation  was  not  allowed  by  the 
charge  to  be  taken  into  account,  the  suggestion  is  plainly  without 
merit.  Not  only  did  the  court  define  the  roadway  as  including 
"structures  connected  with  the  roadway,  such  as  stations,  tool 
houses  and  matters  of  that  sort,"  but  it  included  in  depreciation  a 
lessening  of  original  values  "  due  to  wear  and  tear,  decay,  gradual 
decline  from  obsolescence,  that  is,  getting  out  of  date  and  inade- 
quacy." In  our  opinion  the  jury  was  given  the  correct  rule  for  de- 
termining the  existence  or  nonexistence  of  depreciation,  which 
accords  with  the  "  ordinary  and  usual  sense  "  of  that  term  "  as  un- 
derstood by  business  men.''  —  Van  Baumbach  v.  Sargent  Land  Co. 
242  U.  S.  503,  524.  To  say  that  property  can  depreciate  without 
impairment  of  either  intrinsic  value  or  efficiency  is  to  our  minds  a 
solecism. 

3.  The  refusal  to  direct  verdict.  The  sole  question  in  this  regard 
is  whether  or  not  there  was  substantial  testimony  tending  to  sup- 
port the  Government's  contention  that  there  was  during  the  years 
1909  and  1910  no  net  depreciation  in  the  intrinsic  value  of  the 
roadway  and  structures  considered  as  a  unit.  It  is  not  highly  im- 
portant to  the  determination  of  this  question  whether  the  contro- 
versy arose  oil,  one  theory  and  was  tried  on  another,  nor  whether  the 
claimed  depreciation  would  have  been  allowed  under  the  system  of 
bookkeeping  employed  by  the  Government  had  tlie  charges  therefor 
been  set  up  on  the  railway  company's  books  (249  Fed.  686). 

It  appears  that  defendant  arrived  at  the  depreciation  charges  by 
estimating  the  value  of  the  perishable  structures  as  one-third  the 
cost  of  the  road  (less  equipment  and  real  estate),  and  then  taking  3 
per  cent  of  this  one-third  value,  on  the  theory  that  the  average  life 
of  the  various  perishable  elements  was  33  J/^  years.  Whether  or  not 
these  depreciation  estimates  were  reasonable  was  a  question  for  the 
jury. 

In  our  opinion  there  was  substantial  testimony  tending  to  sup- 
port the  Government's  contention.  It  appeared  that  there  was  ex- 
pended in  round  numbers  for  maintenance  of  way  and  structures; 
that  is  to  say,  for  repairs,  renewals,  and  replacements  for  the  year 
1909,  $1,600,000,  and  for  the  year  1910,  $1,554,000,  and  that  no 
substantial  part  of  these  sums  was  carried  in  defendant's  accounting 


SECT.  IV.]       SMIETANKA  V.  FIRST  TRUST  AND  SAVINGS  BANK.       483 

as  additions  and  betterments.  It  was  admitted  by  defendant's  chief 
engineer  that  tlie  expenditures  for  1909  "kept  the  road  in  a  normal 
condition  to  carry  on  its  business,"  that  "  its  normal  condition  was 
a  good  condition/'  and  that  the  expenditures  "  had  made  good 
the  normal  amount  of  depreciation."  There  was  testimony  by 
competent  witnesses  of  railway  experience  that  "there  may  be  de- 
preciation in  tlie  units  comprising  the  roadway,  track,  and  structures 
of  the  railroad,  while  there  is  no  depreciation  in  the  machine  as  a 
whole";  also  that  it  is  possible  "to  maintain  the  roadway,  track, 
and  structures  so  that  there  will  be  no  depreciation  if  we  consider 
the  roadway,  trac-k,  and  structures  as  a  composite  whole";  also  that 
"the  service  life  of  any  normally  operated  and  normally  and  well 
maintained  railroad  is  perpetual,  and  it  is  maintained  in  the  condi- 
tion of  property  serving  its  purpose  by  annual  renewals  and  replace- 
ments." The  testimony,  considered  as  a  whole,  tended  to  support 
the  conclusion  that  the  amounts  expended  by  defendant  during 
the  years  in  question  for  repairs,  renewals,  and  replacements  should 
and  would  have  fully  offset  the  depreciation  in  the  various  units, 
and  tliat  the  defendant's  railway  and  structures  were,  as  a  whole, 
maintained  throughout  the  years  in  question  in  fully  as  good  con- 
dition, and  were  of  fully  as  great  intrinsic  value,  as  at  the  beginning 
of  the  respective  years.  The  jury  would  have  been  clearly  justified 
in  inferring  from  the  testimony  of  defendant's  chief  engineer,  taken 
as  a  whole,  that  the  value  of  the  roadway  had  not  depreciated  during 
the  two  years  in  question;  in  other  words,  that  the  repairs  and  re- 
newals that  had  been  made  were  of  such  a  character  as  to  leave  the 
road  at  the  end  of  each  year  of  value  equal  to  that  at  the  beginning 
of  the  year.  That  officer's  testimony  so  impressed  the  trial  judge, 
who  stated  his  opinion  from  the  evidence  that  "  there  is  no  reason- 
able deduction  for  depreciation  established."  Defendant  did  not 
directly  controvert  the  situation  so  shown.  Its  chief,  if  not  its  only, 
reliance  seems  to  have  been  on  the  proposition  that  in  spite  of  it  all 
there  was  inevitable  annual  depreciation  in  some  of  the  perishable 
elements  not  entirely  renewed  or  replaced,  so  jiTstifying  the  contention 
that  for  this  reason  there  was  depreciation  within  the  meaning  of  the 
act,  even  though  the  roadway  as  a  whole  had  not  decreased  in  value. 
To  this  argument,  as  already  said,  we  cannot  assent.  It  follows 
that  the  trial  judge  rightfully  refused  to  instruct  verdict  for 
defendant. 

Finding  no  error  in   the  record,  the  judgment  of  the  District 
Court  is  affirmed. 


SMIETANKA  V.  FIHST  TRUST  A:N'D  SAVIYGS  BANK. 
Supreme  Court  of  the  TJxitkd  States.     1922. 

[42  F^up.  Ct.  Rrp.  22;?,  1 

Taft.  C.  ,T.      The  question  presented  for  decision   is  whether, 
under  the  income  tax  law  of  1913,  income  held  and  accumulated  bv 


484       SMIETANKA  I'.  FIRST  TEUST  AND  SAVINGS  BANK.     [CIIAP.  VII. 

a  trustee  for  the  benefit  of  unborn  and  unascertained  persons  was 
taxable.  The  accumulations  of  income  were  $789,905.05  for  the 
years  1913,  1914,  and  1915,  and  the  tax  collected  by  the  petitioner 
as  collector,  and  paid  under  protest  by  the  trustee,  the  respondent, 
amounted  to  $36,638.69.  Respondent  brought  suit  for  this  sum 
against  the  petitioner  in  the  District  Court  for  the  Northern  Dis- 
trict of  Illinois,  and  judgment  was  rendered  against  it  on  demurrer 
to  the  declaration.  The  judgment  was  reversed  by  the  Circuit  Court 
of  Appeals.  (268  Fed.  Kep.  230.)  As  this  case  arises  under  the 
revenue  laws  and  the  judgment  of  the  Circuit  Court  is  final  (sec.  128 
of  the  Judicial  Code),  certiorari  issued  under  section  240  of  the  code. 
The  income  tax  here  in  question  was  provided  for  in  "  An  Act  to 
reduce  tarift'  duties  and  to  provide  revenue  for  the  Government  and 
for  other  purposes,"  enacted  October  3,  1913  (38  Stat.  114),  and  is 
embodied  in  Section  11  of  that  Act  (pp.  166  et  seq.).  The  tax  is 
imposed  by  paragraph  A,  subdivision  1.  It  levies  a  normal  tax  of  1 
per  cent  upon  the  entire  yearly  income  arising  from  all  sources  ac- 
cruing to  every  citizen  of  the  United  States  and  to  every  person  in 
the  United  States  residing  there.  In  subdivision  2,  an  additional  or 
surtax  is  levied  on  the  net  income  of  every  individual.  Under  para- 
graph G,  the  normal  tax  imposed  on  individuals  is  extended  to  cor- 
porations. Paragraph  B  defines  the  net  income  of  individuals  and 
specifies  the  deductions.  Paragraph  D  makes  provision  for  returns 
by  persons  and  then  says: 

"  Guardians,  trustees,  executors,  administrators,  agents,  receivers, 
conservators  and  all  persons  or  associations  acting  in  a  fiduciary 
capacity  shall  make  and  render  a  return  of  the  net  income  of  the 
person  for  whom  they  act,  subject  to  this  tax,  coming  into  their 
custody  or  control  and  management  and  be  subject  to  all  the  pro- 
visions of  this  section  which  apply  to  individuals." 

Paragraph  E  provides  that,  among  others,  all  lessees  or  mort- 
gagors of  real  or  personal  property,  trustees  acting  in  any  trust 
capacity,  executors,  administrators,  agents,  receivers,  conservators, 
having  control,  receipt,  custody,  disposal  or  payment  of  annual 
gains,  profits  and  income  of  another  person,  exceeding  $3,000  for  any 
taxable  year,  who  are  required  to  make  return  in  behalf  of  another, 
shall  deduct  the  normal  tax  on  the  income  and  pay  it  to  the  United 
States,  and  they  are  each  made  personally  liable  for  such  tax.  It  is 
further  declared  tliat  these  payments  of  the  tax  at  the  source  shall 
only  apply  to  the  normal  tax  thereinbefore  imposed  on  individuals. 

It  is  obvious  from  a  reading  of  the  statute,  the  relevant  provisions 
of  which  we  have  summarized,  that  Congress  was  seeking  to  require 
fiduciaries  to  make  return  and  pay  the  normal  tax  due  from  persons 
subject  to  the  tax  on  such  income  as  the  fiduciaries  were  receiving 
for  such  persons.  There  was  nowhere  in  the  Act  a  payment  required 
of  the  fiduciary  of  a  tax  upon  the  income  of  the^ estate  or  trust  prop- 
erty, the  income  from  which  ho  collects,  except  as  it  is  to  inure  to 
the  benefit  of  a  person  or  an  individual  from  whose  income  he  is 


SECT.   IV.]     SMIETAXKA  i'.   FIKST  TRUST  AND  SAVINGS   BANK.       485 

authorized  and  required  to  deduct  the  normal  tax  thereon.  There 
must  liave  been  a  taxable  person  for  whom  the  fiduciary  was  acting 
to  make  tiie  provisions  relied  upon  by  the  Government  applicable. 
There  was  no  provision  for  the  payment  "  at  the  source  "  by  the 
fiduciary  of  anything  but  the  nornuii  tax.  It  was  intended  that  the 
additional  or  surtax  should  be  paid  by  the  cestui  que  trust.  Here 
there  was  no  cestui  que  trust  to  pay  a  surtax. 

Xo  language  in  the  Act  included  a  tax  on  income  received  by  a 
trustee  by  him  to  be  accumulated  for  unborn  or  unascertained  bene- 
ficiaries. There  was  indicated  in  the  taxing  paragrapli  A  the  con- 
gressional intention  to  tax  citizens  everywhere,  and  noncitizens, 
resident  in  the  United  States,  ineluding  persons,  natural  and  cor- 
porate, on  income  from  every  source  less  allowed  deductions.  But 
nowhere  were  words  used  which  can  be  stretciied  to  include  unborn 
beneficiaries  for  whom  income  may  be  accumulating.  It  may  be 
that  Congress  had  a  general  intention  to  tax  all  incomes,  whether 
for  the  benefit  of  persons  living  or  unborn,  but  a  general  intention 
of  this  kind  must  be  carried  into  language  which  can  be  reasonably 
construed  to  effect  it.  Otherwise  the  intention  can  not  be  enforced 
by  the  courts.  The  provisions  of  such  Acts  are  not  to  be  extended 
by  implication.  Treat  i'.  White,  181  U.  S.  264,  207;  United  States 
V.  Field,  255  U.  S.  257;  Gould  v.  Gould,  245  U.  S.  151,  153. 

The  Treasury  Department  did  not  attempt,  for  two  years,  to 
collect  a  tax  on  income  of  this  character.  This  was  in  accord  with  the 
ruling  of  Deputy  Commissioner  of  Internal  Revenue  Speer,  dated 
February  9,  1915,  published  by  the  department.  (Corporation 
Trust  Co.  Income  Tax  Service  1915,  p.  426.)  He  held  that  "the 
income  tax  can  be  levied  only  on  such  income  as  is  payable  to  some 
natural  or  artificial  person  subject  to  the  provisions  of  the  law." 

Subsequently  this  ruling  was  changed  and  the  Commissioner  of 
Internal  Revenue  held  that  "  when  the  beneficiary  is  not  in  esse  and 
the  income  of  the  estate  is  retained  by  the  fiduciary,  such  income 
will  be  taxable  to  the  estate  as  for  an  individual,  and  the  fiduciary- 
will  pay  the  tax  both  normal  and  additional." 

This  seems  to  us  to  graft  something  on  the  statute  that  is  not 
there.  It  is  an  amendment  and  not  a  construction,  and  such  an 
amendment  was  made  in  subsequent  income  tax  laws,  as  we  shall 
see. 

Counsel  for  the  Government  cite  the  case  of  Merchants  Loan  & 
Trust  Company  r.  Smietanka  (255  U.  S.  509)  to  support  their  con- 
tention. It  does  not  do  so,  because  it  deals  with  an  amendment 
of  the  provision  here  under  discussion.  The  issue  there  was  the 
legality  of  an  income  tax  levied  against  a  trustee  for  income  re- 
ceived by  him  under  a  testamentary  trust  to  pay  the  net  income  to 
the  widow  for  life  and  afterwards  to  the  children.  It  was  held  that 
the  trustee  was  a  taxable  person  under  the  Act  of  October  3,  1917 
(40  Stat.  331),  which  required  trustees  to  render  a  return  of  the 
income  for  the  person,  trust  or  estate  for  whom  or  which  thev  act. 

The  Act  of  September  8,  1916  (39  Stat.  757).  specifically  de- 
clared that  the  income  accumulated  in  trust  for  the  benefit  of  un- 


486  UNITED    STATES    V.    COULBY.  [cHAP.  VII. 

born  or  unascertained  persons  should  be  taxed  and  assessed  to  the 
trustee.  It  is  obvious  that  in  the  Acts  subsequent  to  that  of  1913, 
Congress  sought  to  make  specific  provision  for  the  casus  omissus  in 
the  earlier  Act. 

This  case  is  not  unlike  that  of  United  States  v.  Field  (255  U.  S. 
257).  The  Revenue  Act  of  1916  imposed  a  tax  on  the  estate  of  a 
decedent  at  the  time  of  his  death.  The  Government  sought  to  tax 
property  passing  under  a  decedent's  testamentar}^  execution  of  a 
general  power  of  appointment.  It  was  held  that  while  in  equity- 
property  passing  imder  such  a  power  might  be  treated  as  assets  of 
the  donee  for  the  use  of  his  creditors  if  executed  in  favor  of  a  vol- 
unteer, it  -was  not  subject  to  distribution  as  part  of  the  estate  of  the 
donee  and  was  not  taxable.  In  the  later  Act,  such  property  was 
expressly  included.  This  was  thought  by  the  court  to  show  at  least 
a  legislative  doubt  w'hether  the  earlier  Act  included  such  property. 
This  court  said  (p.  264)  that  it  would  have  been  easy  for  Congress 
to  express  a  purpose  to  tax  such  property  but  it  had  not  done  so. 
In  the  Act  of  1913,  it  would  have  been  easy  to  require  a  trustee 
to  pay  an  income  tax  received  by  him  for  unborn  beneficiaries  or 
for  the  trust  or  the  estate.  But  Congress  did  not  do  so.  In  the 
next  Act,  it  did  so.  We  cannot  supply  the  omission  in  the  earlier 
Act. 

The  judgment  of  the  Circuit  Court  of  Appeals  is  affirmed. 


UNITED  STATES  v.  COULBY. 
DiSTEiCT  Court  of  the  United  States.     1918. 

[Reported  251  Fed.  982.] 

Westenhaver^  Dist.  J.  This  is  an  action  at  law  to  recover 
$588.45,  with  interest  and  penalties  thereon,  alleged  to  be  due 
as  unpaid  income  tax  for  the  nine  months  ending  December  31, 
1913,  under  the  Federal  income  tax  law  of  1913.  A  jury  trial 
was  waived  by  the  parties  and  the  case  has  been  submitted  to  me 
for  decision  upon  an  agreed  statement  of  facts.  Briefly  the  facts 
are  these: 

The  defendant,  during  the  period  in  question,  was  a  member  of 
a  partnership  by  the  name  of  Pickands,  Mather  &  Co.  This  part- 
nership was  then  the  owner  of  stocks  in  certain  corporations  which 
were  taxable  upon  their  net  income  under  the  provisions  of  section 
G  of  the  income  tax  law.  Dividends  were  declared  and  paid  by  these 
corporations  upon  the  stocks  held  therein  by  the  partnership.  The 
defendant,  in  making  return  of  his  income  for  taxation,  included 
as  a  part  of  his  gross  income  his  share  of  the  profits  of  the  partner- 
ship, but  deducted  therefrom  such  part  thereof  as  was  derived  by  or 
through  the  partnership  from  dividends  on  stocks  in  these  corpora- 
tions taxable  upon  their  net  income. 

Later,  on  or  about  June  27,  1917,  the  Commissioner  of  Internal 


SECT.   IV.]  UNITED  STATES    V.   COULBY.  487 

Revenue  examined  the  defendant's  return  and  disallowed  the  de- 
ductions tlius  made  and  assessed  the  normal  tax  of  1  per  cent 
against  the  defendant  on  such  deduction.  The  item  of  $588.45 
represents  that  assessment. 

The  exact  question  presented  for  decision  is  whether  or  not  a 
member  of  a  partnersliip  must  include  as  a  part  of  his  net  income 
subject  to  the  normal  tax  such  part  of  his  income  derived  from  or 
through  a  partnership  which  has  been  received  by  that  partnership  as 
dividends  on  stocks  owned  by  it  in  corporations  taxable  upon  their 
net  income  under  section  G  of  the  Federal  income  tax  law  of  1913. 

Plaintiirs  contention  tluit  profits  thus  derived  are  a  part  of  the 
partner's  net  income,  and  subject  to  the  normal  tax,  is  based  on 
the  following  paragraph  of  section  D : 

Provided  further,  That  any  persons  carrying  on  business  in  part- 
nersliip shall  be  liable  for  income  tax  only  in  their  indindual 
capacity,  and  the  share  of  the  profits  of  a  partnership  to  which 
any  taxable  partner  would  be  entitled  if  the  same  were  divided, 
whether  divided  or  otherwise,  sluill  be  returned  for  taxation  and 
the  tax  paid  under  the  provisions  of  this  section. 

An  examination  of  the  entire  income  tax  law  convinces  me  that 
plaintiff's  contention  is  erroneous.  Section  B  defines  what  shall 
constitute  the  net  income  of  a  taxable  person ;  it  includes  his  gains, 
profits,  and  income  derived,  not  merely  from  salaries,  wages,  or 
compensation  for  personal  service,  but  also  from  businesses,  trade, 
commerce,  or  sales  or  dealings  in  property,  or  the  transaction  of 
any  lawful  business  carried  on  for  gain  or  profit.  This  plainly 
includes  such  gains  and  profits  derived  from  or  through  a  part- 
nership. 

Section  B  also  states  what  deductions  shall  be  made  from  the 
gross  income  of  a  taxable  person  in  order  to  ascertain  the  net 
income  for  the  purpose  of  le\Ting  the  normal  tax.  Among  these 
deductions  is  the  amount  received  as  dividends  upon  the  stock  or 
from  the  net  earnings  of  any  corporation,  joint-stock  company, 
association,  or  insurance  company  which  is  taxable  upon  its  net 
income. 

Section  G  provides  for  the  normal  tax  upon  the  entire  net  in- 
come of  corporations.  It  expressly  excludes  partnerships  therefrom. 
This  net  income  of  corporations  is  subject  only  to  the  normal  tax 
such  as  is  levied  on  the  income  of  any  natural  taxable  person,  and 
not  to  the  additional  tax  provided  for  by  subdivision  2  of  section 
A.  This  income  from  corporations  received  by  a  natural  taxable 
person  is  exempt  only  from  the  normal  income  tax,  and  not  from 
such  additional  tax. 

Taking  these  provisions  as  a  whole,  the  paragraph  of  section  D  re- 
lating to  partnerships  above  quoted  must  be  considered  and  construed 
in  the  light  of  the  general  scheme  thus  outlined.  No  provision 
is  anywhere  made  recjuiring  a  return  to  be  made  by  a  partnership 
upon  its  income.  This  is  true  notwithstanding  section  D  requires 
copartnerships,  having  the  control,  receipt,  disposal,  or  payment  of 


488  UNITED  STATES  V.  COULBY.  [ciIAP.  VII. 

fixed  income  of  another  person  subject  to  tax,  to  make  a  return  in 
behalf  of  that  person  and  to  deduct  the  same.  This  provision  deals 
with  the  fiduciary  rehitionship  of  guardians,  trustees,  executors, 
and  so  forth,  having  the  possession  and  control  of  other  person's 
property;  but  as  regards  an  ordinary  partnership  and  its  ordinary 
business,  the  statement  is  true  that  no  return  is  required  to  be  made 
under  the  Federal  income  tax  law  of  1913  by  a  partnership. 

Partnerships  are  expressly  excluded  from  section  G,  requiring 
returns  and  pavment  of  the"'  normal  tax  by  corporations.  If  Con- 
gress had  intended  that  partnerships,  as  such,  should  be  taxable 
upon  their  net  income,  the  logical  place  to  have  so  provided  would 
have  been  in  section  G,  and  to  have  excluded  from  the  net  income 
of  a  natural  taxable  person,  subject  to  the  normal  tax,  that  part 
of  his  income  derived  from  a  partnership  just  as  is  provided  with 
respect  to  his  income  derived  from  a  corporation. 

This  law,  therefore,  ignores  for  taxing  purposes  the  existence  of 
a  partnership.  The  law  is  so  framed  as  to  deal  witli  the  gains 
and  profits  of  a  partnership  as  if  they  were  the  gains  and  profits 
of  the  individual  partner.  The  paragraph  above  quoted  so  provides. 
The  law  looks  through  the  fiction  of  a  partnership  and  treats  its 
profits  and  its  earnings  as  those  of  the  individual  taxpayer.  Unlike 
a  corporation,  a  partnership  has  no  legal  existence  aside  from  the 
members  who  compose  it.  The  Congress,  consequently,  it  would 
seem,  ignored,  for  taxing  purposes,  a  partnership's  existence,  and 
placed  the  individual  partner's  share  in  its  gains  and  profits  on  the 
same  footing  as  if  his  income  had  been  received  directly  by  him 
without  the  intervention  of  a  partnership  name. 

It  follows  from  these  considerations  that  legally  the  defendant's 
share  of  the  gains  and  profits  of  the  Pickands,  Mather  &  Co.,  derived 
from  corporations  taxable  on  their  net  incomes,  is  to  be  treated 
as  if  the  same  had  been  received  by  him  directly  from  the  tax- 
paving  corporations. 

The  contrary  contention  is  based  on  a  literal  reading  of  the  words, 
"the  share  of  the  profits  of  a  partnership  to  which  any  taxable 
partner  would  be  entitled  if  the  same  were  divided,  whether  divided 
or  otherwise,  shall  be  returned  for  taxation  and  tax  paid."  This  sen- 
tence follows  language  plainly  ignoring  the  existence  of  partnerships 
for  taxing  purposes.  Section  B  had  alreadv  provided  what  should  be 
regarded  as  net  income  in  language  sufficiently  comprehensive  to 
inelurle  the  gains  and  profits  from  business  carried  on  in  a  partner- 
ship name.  The  words  just  quoted  evidently  apply  only  to  the 
possibility  that  a  partnership  mifrht  not  divide  its  gains  and  profits, 
but  retain  them  in  the  firm  name  or  bii'siness.  It  was  to  meet 
this  possibility  that  these  words  were  arlded,  and  not  to  provide 
an  unequal  and  unique  method  of  taxing  a  partner's  gains  and 
profits  from  a  partnership. 

The  contention  to  the  contrary  is  narrow  and  literal,  even  if  not 
lacking  in  plausibility.  Tt  is  a  contontinn,  however,  contrarv  to  the 
spirit  and  creneral  policy  of  the  act;  it  destrovs  uniformity  and 
equality  and  should  not  be  adopted  unless  required  by  the  express 


SECT.  IV.]        KEMI'EK  MILITARY  SCHOOL  V.  CUUTCHLEY.  489 

language  of  the  statute.  Jn  my  opinion,  the  language  of  the  statute 
does  not  so  require;  hut,  on  tlie  contrary,  when  the  entire  aet  is 
exaiiiined,  it  does  give  a  riglit  to  tl)e  deduction. 

Counsel  for  plaintiff  invoke  tlie  legal  principles  that  an  exemp- 
tion in  a  tax  law  must  he  clearly  expressed  and  will  uol  he  implied ; 
that  power  to  tax  will  not  he  taken  away  unless  the  lawmaking 
power  has  done  so  in  clear  and  unequivocal  language,  and  that 
inasmuch  as  uniformity  and  c(iuality  is  dillicult,  if  not  impossible, 
of  attainment  in  tax  laws,  the  ine(|uality  whicii  miglit  result  froni 
the  CJovcrnment's  contention  slujuld  not  he  pernjitted  to  control 
the  language  of  the  law.  Numerous  authorities  illustrating  these 
legal  principles  are  cited.  These  principles  are  well  settled,  and 
1  assume  ample  i)owcr  in  Congress  to  have  asse.ssed  defendant's 
income  derived  from  a  partnership  in  the  manner  contended  for. 
It  is  my  opinion,  however,  that  Congress  has  not  done  so. 

Counsel  for  plaintiff  call  attention  to  the  fact  tliat  the  Federal 
income  tax  law  of  September  8,  1916,  now  provides  that  memljcrs 
of  partncrsliips  shall  be  allowed  credit  for  their  proportionate  share 
of  partnership  gains  and  profits  derived  from  corporations  taxable 
on  their  net  income,  and  urge  tliat  this  is  a  change  of  the  law, 
and  evidences  a  belief  of  the  lawmaking  body  that  the  1913  income 
tax  law  had  provided  differently.  1  do  not  agree  with  this  conten- 
tion. In  my  opinion,  this  provision  was  inserted  in  the  1916  act 
to  put  at  rest  the  present  controversy  rather  than  to  change  the 
law,  and  is  to  be  regarded  only  as  a  legislative  recognition  of  the 
scope  and  intent  of  the  prior  law.  The  applicable  authorities,  in 
my  opinion,  are  the  following:  Bailey  v.  Clark,  21  Wall.  284  ;  Johnson 
V.'  Southern  Pacific  Co.,  196  U.  "S.  1  ;  Wetmore  v.  Markoe,  196 
U.  S.  68. 

Judgment  is  rendered  in  favor  of  defendant.  An  exception 
may  be  noted  on  behalf  of  plaintiff. 


KEMPER  MILITARY  SCHOOL  v.  CRUTCHLEY. 
DiSTEiCT  Court  of  the  United  States.     1921. 

[Reported  274  Fed.  125] 

Van  VALKENBrRGH,  J.  The  plaintiff  in  this  action  seeks  to 
recover  the  sum  of  $52,166.81  income  taxes,  with  interest  and 
penalty,  alleged  to  have  been  illegally  exacted  from  the  plaintiff  by 
the  defendant  for  the  year  1918.  The  basis  of  plaintiff's  alleged  right 
to  recover  the  above  sum  is  that  it  is  exempt  from  tax  as  an  educa- 
tional institution,  which  was  organized  and  operated  exclusively  for 
educational  purposes,  and  that  no  part  of  its  net  earnings  inures 
to  the  benefit  of  any  private  stockholder  or  individual.  This  de- 
fense is  asserted  under  the  followinij  exemptions  specifically  pro- 
vided bv  the  Congress: 


490  KEMPER  MILITARY  SCHOOL   V.   CRUTCHLEY.  [ciIAP.   VII. 

Corporations  organized  and  operated  exclusively  for  religious, 
charitable,  scientific,  or  educational  purposes,  or  for  the  prevention 
of  cruelty  to  children  or  animals,  no  part  of  the  net  earnings  of 
which  inures  to  the  benefit  of  any  private  stockholder  or  individual. 

The  plaintiff  was  incorporated  June  15,  1909,  under  the  pro- 
visions of  chapter  12,  article  9,  of  the  Revised  Statutes  of  Missouri, 
1899,  governing  the  formation  of  private  corporations  for  manufac- 
turing and  business  purposes.  This  statute  appears  as  article  7 
of  chapter  33  of  the  Revised  Statutes  of  1909,  concerning  private 
corporations,  and  deals  with  corporations  organized  for  pecuniary 
profit  and  gain.  Plaintiff  was  not  organized  under  the  article  of 
the  same  chapter,  which  deals  with  benevolent,  religious,  scientific, 
educational,  and  miscellaneous  associations  not  intended  for  pe- 
cuniary gain  or  profit. 

The'  school  was  originally  of  individual  ownership.  For  many 
voars  prior  to  its  incorporation  it  was  o^\Tled  by  Col.  T.  A.  Johnston, 
now  its  president  and  principal  stockholder.  He  purchased  it 
originally  for  approximately  $13,000;  since  which  time  large  addi- 
tions and  betterments  have  been  made  until  its  present  total  assets  are 
shown  to  be  $348,796.01,  its  liabilities  $96,522.88,  and  its  net 
resources  $252,273.13.  Its  present  attendance  totals  about  435 
pupils.  In  1918  and  1919,  during  war  activities,  it  had  a  few 
over  500.  In  1918  the  charge  was  $600  per  pupil  for  tuition, 
board,  and  lights.  The  charge  now  has  been  raised  to  $700.  In 
addition  thereto  it  sells  to  the  pupils  uniforms  and  books,  upon 
which  it  makQg  a  profit. 

It  receives  minor  items  of  income  from  other  sources  which  do 
not  require  detailed  consideration. 

For  the  calendar  year  1918  its  gross  income  amounted  to 
$205,153.26,  of  which  the  sum  of  $5,083.11  was  received  from 
sources  other  than  tuition;  after  making  statutory  deductions  the 
net  income  remaining  amounted  to  $79,788.01.  The  figures  in- 
volved are  not  in  dispute  except  as  to  some  claims  for  deduction 
to  which  reference  will  be  hereafter  made. 

When  the  school  was  incorporated  Col.  Johnston  transferred  the 
property  to  the  corporation,  receiving  stock  therefor.  The  re- 
maining shares  of  stock  were  subscribed  for  by  teachers,  and  the 
officers  and  board  of  directors  are  made  up  of  such.  These  teachers 
paid  for  their  stock  out  of  their  earnings.  A  dividend  of  6  per 
cent  has  been  paid  upon  all  stock  since  the  date  of  the  incorporation. 

That  the  corporation  is  operated  exclusively  for  educational  pur- 
poses may  be  conceded.  If  the  law  had  stopped  there  and  had 
evidenced  the  purpose  of  exempting  all  such,  the  contention  of 
the  Government  would  be  without  merit,  but  the  law  further 
provides  that,  not  only  must  the  corporation  be  organized  and 
operated  exclusively  for  educational  purposes,  but  that  no  part  of 
its  net  earnings  should  inure  to  the  benefit  of  any  private  stock- 
holder or  individual.  The  case  of  State  ex  rel.  J.  L.  Sillers  v. 
Johnston    (214  Mo.  656),  in  which  this  same  school  was  under 


SECT.  IV.]        KEMPEK  MILITARY  SCHOOL  V.  CKUTCHLEY.  491 

discussion,  is  not  in  point.  There  tlie  school  was  exempt  under 
a  provision  of  the  State  constitution  and  statute  whicli  exempts 
from  taxation  real  estate  "  used  exclusively  for  schools."  The 
element  of  private  pecuniary  gain  was  not  involved;  and,  further 
more,  the  construction  of  a  State  court  upon  a  State  constitution 
or  law  could  not  aifect  a  Federal  statute  of  dilferent  intendment 
and  uncontrolled  by  State  laws. 

This  corporation,  while  devoted  to  educational  purposes,  was 
confessedly  organized  for  private  pecuniary  profit  and  gain.  Its 
teachers  all  receive  salaries.  In  addition  thereto,  they  have  all, 
including  Col.  Johnston,  received  an  annual  dividend  of  6  per 
cent  upon  their  stock  since  the  date  the  corporation  was  organized. 
While  under  the  terms  of  the  statute  we  are  concerned  chiefly 
with  net  earnings,  nevertheless  it  may  appropriately  be  remarked 
that  the  increase  in  value  of  the  school  property  inures  to  the 
stockholders  of  this  business  corporation.  It  might  at  any  time  be 
sold  and  the  purchase  price  divided  proportionately  to  such  hold- 
ings. Upon  ultimate  dissolution  the  holders  of  these  shares  of 
stock  would  receive  the  proceeds  of  the  property,  including  ac- 
cumulated income. 

The  chief  insistence  is  that  because  all  the  shareholders  are 
officers,  directors,  and  teachers  in  the  institution  they  are  not 
"  private  stockholders  or  individuals."  This  involves  a  narrowness 
of  definition  that  can  not  be  entertained  in  view  of  the  obvious 
purpose  and  spirit  of  the  act.  The  distinction  is  not  between  private 
and  official,  whether  the  latter  be  used  in  a  military  or  an  institu- 
tional sense.  The  word  "  private  "  as  here  used  is  the  antonym  of 
"public"  —  a  private  stockholder  as  distinguished  from  the  general 
public  —  the  supposed  beneficiary  of  the  benevolent  activities  of 
an  institution  devoted  exclusively  to  public  betterment.  Private 
pecuniary  profit  and  gain  is  the  test  to  be  applied.  This  corporation 
was,  and  is,  undeniably  organized  and  operated  for  that  purpose. 

It  does  not  detract,  even  in  small  degree,  from  the  merit  and 
worthy  service  of  the  plaintiff,  as  a  valuable  institution  of  learning, 
to  hold,  as  we  must,  that  it  is  not  e.xempt  from  the  tax  imposed. 

Plaintiff  further  contends  that  — 

Even  if  it  were  liable  to  pay  said  taxes,  they  should  not  be  col- 
lected for  the  year  1918  because  it  expended  in  the  necessary  furni- 
ture and  fixtures  the  sum  of  $13,086.68  and  for  buildings  and 
other  necessary  improvement  $81,188.35,  amounting  in  tlie  aggregate 
to  $94,275.03,  which  amount  was  expended  for  the  upkeep  and 
expansion  of  the  plaintiff's  plant  and  for  the  comforts  and  neces- 
sities of  said  school. 

To  this  claim  the  defendant  answers  that  plaintiff,  in  its  appeal 
to  the  Commissioner  of  Internal  Eevenue  in  its  claim  for  the  abate- 
ment of  said  taxes  and  for  refund,  never  at  any  time  assert^^d  or 
claimed  that  it  had  failed  to  take  credit  for  any  deduction  in  its 
said  return  of  income  for  the  vear  1918,  wliioh  it  was  entitled  to 


493       FINK  V.  NOBTHWESTEEN  MUTUAL  LIFE  INS.  CO.        [ciIAI'.  VII. 

take,  in  computing  its  net  income  for  that  year,  under  the  act  of 
Congress,  and  that  said  claim  was  never  at  any  time  presented  by 
the  plaintiff  to  the  Commissioner  of  Internal  Revenue  for  his 
consideration  and  decision  thereon;  further,  that  in  computing 
its  net  income  for  the  year  1918  plaintiff  deducted,  in  its  said 
return  of  income  for  said  year,  a  reasonable  allowance  for  the 
exhaustion,  wear,  and  tear  of  the  property  used  in  its  trade  or 
business,  including  a  reasonable  allowance  for  obsolescence.  These 
I  allegations  of  the  answer  are  sustained  by  the  testimony.  The 
law  provides  for  a  reasonable  allowance  for  exhaustion,  wear  and 
tear,  etc.,  as  conceded  by  defendant,  and  as  claimed  by  plaintiff  in 
its  return  and  allowed  by  the  collector  and  commissioner.  It  further 
provides  that  in  computing  net  income  no  deduction  shall  in  any  case 
be  allowed  in  respect  of  any  amount  paid  out  for  new  buildings,  or  for 
permanent  improvements  or  betterments  made  to  increase  the  value 
of  any  property  or  estate.  It  follows  that  this  claim  for  deduction, 
in  the  sum  of  $94,275.03,  or  any  part  thereof,  can  not  be  indulged. 
It  appearing  that  the  grounds  upon  which  plaintiff  relies  for 
recovery  are  untenable,  and  there  being  no  dispute  that  the  amount 
of  the  "tax  levied  was  correct  if  plaintiff's  contentions  are  not  sus- 
tained, it  follows  that  judgment  must  be  entered  for  the  defendant, 
and  it  is  so  ordered. 


FIXK  t'.  XOETH^YESTEEX  MUTUAL  LIFE 
IXSUEANCE  CO. 

ClKCUIT    COUKT   OF   APPEALS.       1920. 
[Reported  267  Fed.  968.] 

Page,  Circ.  J.  This  case  comes  here  on  a  writ  of  error  to  re- 
verse the  judgment  for  plaintiff  in  the  District  Court,  entered 
by  Judge  Geiger  (see  248  Fed.  568,  where  the  facts  are  fully  stated). 
The  insurance  company,  the  defendant  in  error,  will  herein  be  known 
as  plaintiff,  and  the  collector  of  internal  revenue,  plaintiff  in  error, 
will  herein  be  known  as  defendant. 

The  Commissioner  of  Internal  Revenue  amended  plaintiff's  re- 
turns of  income  for  the  years  1909  and  1910,  filed  under  the 
excise  tax  law  of  August  5,  1909,  and  thereby  greatly  increased  the 
tax.  This  suit  was  brought  to  recover  that  increase,  paid  under 
protest. 

Defendant  states  the  following  as  the  questions  involved,  and 
they  will  be  determined  as  written  : 

I. 

1.  Whether  dividends  applied  at  the  option  of  the  policyholders 
to  purchase  paid-up  additions  and  annuities  were  not  income  for 
the  year  in  which  so  applied  within  the  meaning  of  the  act. 

2.  WTiether  dividends  applied  at  the  option  of  the  policyholders 


SECT.  IV.]        FINK   V.  NORTHWESTERN   MUTUAL   lAl-E  INS.   CO.       493 

in  partial  payment  of  renewal  premiums  were  not  income  for  the 
year  in  which  so  apjjlicd  witliin  tiie  incaniiig  of  the  act. 

The  excise  tax  act  of  August  5,  IDOli  (3G  Stats.  L.,  ch.  6,  p.  11 
(112)),  provides: 

.  .  .  Every  insurance  company  .  .  .  organized  under  the  laws  .  .  . 
of  any  State  .  .  .  shall  Ijc  subject  to  pay  annually  a  special  excise 
tax  .  .  .  equivalent  to  one  per  centum  upon  the  entire  net  income 
over  and  above  $5,0U0  received  by  it  from  all  sources  during  suck 
year,  exclusive,  etc.  .  .  .  Such  net  income  shall  be  ascertained  by 
deducting  from  the  gross  amount  of  the  income  of  such  .  .  .  in- 
surance company,  received  within  the  year  from  all  sources,  .  .  . 
(second)  .  .  .  and  in  the  case  of  insurance  companies  the  sum  other 
than  dividends,  paid  within  the  year  on  policy  and  annuity  contracts 
and  the  net  addition,  if  any,  required  by  law  to  be  made  within  the 
year  to  reserve  funds; 

Disregarding  the  deductions,  the  basis  for  the  tax  is  "income 
.  .  .  received  .  .  .  during  such  year." 

Plaintiff  is  a  mutual  insurance  company,  organized  under  the 
laws  of  Wisconsin,  and  annually  collects  level  premiums  which  are 
sufficiently  large  to  pay  the  insurance  cost,  including  reserves,  and 
all  of  the  expenses  of  the  business.  Usually  there  is  something 
left  over  for  a  surplus,  which  surplus  is  recpiired  by  the  laws  of 
the  State  of  Wisconsin  to  be  divided  among  the  policyholders.  The 
dividend  of  surplus  is  in  no  sense  a  dividend  of  profits.  By  dividing 
such  a  surplus  by  means  of  the  so-called  "  dividend,"  the  company 
simply  says  to  its  policyholders :  "  There  is  available  to  you,  from 
funds  heretofore  paid  by  you  to  tliis  company,  a  sum  of  money  that 
may  be  used  by  you  for  the  payment  of  premiums,  paid-up  addi- 
tions, annuities,  or  for  whatever  use  you  may  choose  to  make  of  it.'' 

The  excise  law  did  not  take  effect  until  January  1,  1909,  and. 
inasmuch  as  tlie  surplus  converted  into  dividends  in  1909  was  re- 
ceived by  the  company  before  the  law  went  into  effect,  that  surplus, 
converted  into  dividends,  was  not  income  for  1909.  The  surplus 
from  premiums,  out  of  which  the  dividends  for  1910  were  declared, 
was  a  part  of  the  income  for  1909,  and  formed  a  basis  for  taxation, 
under  the  excise  law,  for  that  year,  and  could  not,  as  dividends, 
form  a  basis  for  further  taxation.  In  other  words,  the  fair  inter- 
pretation of  the  statute  is  that  income  forms  a  basis  for  taxation 
only  for  the  year  in  which  it  was  received.  Herold  v.  Mutual  Bene- 
fit Life  Ins. "Co.,  201  Fed.  918;  Maryland  Casualty  Co.  v.  United 
States,  decided  bv  the  Supreme  Court  of  the  United  States  January 
12,  1920;  Hays  i'.  Gauley  Mt.  Coal  Co.,  247  U.  S.  192.  There  is 
nothing  in  Maryland  Casualty  Co.  v.  United  States,  supra,  out  of 
harmony  with  this  interpretation.  It  was  said  that  funds  of  an  in- 
surance company,  which  had  escaped  taxation  in  the  year  in  which 
they  were  received  because  they  had  been  set  aside  as  a  reserve  in 
tliat  year  and  therefore  had  formed  no  basis  for  taxation,  mitrht,  if 
they  were  released  from  that  reserve  to  the  general  uses  of  the  com- 


494       FIXK  V.  NORTHWESTEEN  MUTUAL  LIFE  INS.  CO.      [CELAP.  VH. 

pany,   be  treated  as  income  for  the  year  in  which  they  were  so 
released. 

II. 

3.  Whether  premiums  due  and  deferred  and  interest  due  and 
accrued,  but  not  actually  collected  in  cash,  were  not  income  within 
the  meaning  of  the  act. 

In  Hays  v.  Gauley  Mt.  Coal  Co.,  supra,  this  question  was  answered 
contrary  to  the  contention  of  the  Government  in  the  following 
language : 

The  expression  "income  received  during  such  year"  employed 
in  the  act  of  1909,  looks  to  the  time  of  realization  rather  than  to 
tlie  period  of  accruement,  except  as  the  taking  effect  of  the  act  on  a 
specified  date  (Jan.  1,  1909),  excludes  income  that  accrued  before 
that  date. 

See  also  Maryland  Casualty  Co.  v.  United  States,  supra. 

III. 

4.  "Whether  interest  on  policy  loans,  which  by  the  terms  of  the 
contract  was  added  to  the  principal  of  the  loan  when  it  became  due 
and  remained  unpaid  by  the  policyholders,  was  not  income  within 
the  meaning  of  the  act. 

This  question  is  answered  contrary  to  the  Government's  conten- 
tion bv  Board  of  Assessors,  etc.,  v.  New  York  Life  Ins.  Co., 
316  U."'S.  517. 

IV. 

5.  Whether  increases  in  the  value  of  assets  because  of  accrual  of 

discounts  were  no  income,  and  decreases  in  value  of  assets  because 
of  amortization  of  premiums  on  bonds  were  a  deduction  from  income 
under  the  act. 

In  the  reassessment  the  commissioner  added  to  income  for  the 
two  rears  a  total  as  "Accrual  of  discount,"  of  $67,268.96,  and  de- 
ducted for  "Depreciation"  (amortization  of  bonds)  for  the  two 
years,  $231,654.86.    In  his  findings  of  fact.  Judge  Geiger  said: 

Plaintiff  waived  objection  in  each  amended  return  made  by  the 
Commissioner  of  Internal  Eevenue  to  the  item  "Accrual  of  dis- 
count" and  to  the  item  "Depreciation." 

Thereupon  the  court  disposed  of  those  items  by  deducting  the 
"Accrual  of  discount"  from  the  "Depreciation,"  giving  plaintiff 
a  net  deduction  of  $164,385.90.  Inasmuch  as  plaintiff  waived  ob- 
jection to  items  "Accrual  of  discount,"  the  propriety  of  such  a 
charge  will  not  be  discussed  here.  If  deduction  by  reason  of  amor- 
tization of  premiums  on  bonds  was  proper,  it  must  have  been  so 
under  the  following  provision  of  the  statute,  viz : 

All  losses  actually  sustained  within  the  year  and  not  compensated 
by  insurance  or  otherwise,  including  a  reasonable  allowance  for  de- 
preciation of  property,  if  any. 


SECT.  IV.]       FINK  V.  NOBTHWESTERN  MUTUAL  LIFE  INS.  CO.       495 

There  was  no  sale.  The  item  arose  from  mere  book  adjustments. 
In  our  opinion  amortization  of  bonds  does  not  come  within  any 
definition  of  "Depreciation"  under  this  or  similar  acts.  Jn  con- 
sidering the  excise  statute,  the  Supreme  Court  has  said: 

What  was  here  meant  by  "Depreciation  of  property"?  We  think 
Congress  used  the  expression  in  its  ordinary  and  usual  sense  as  un- 
derstood by  business  men.  Jt  is  common  knowledge  that  business 
concerns  usually  keep  a  depreciation  account,  in  wiiich  is  charged 
off  the  annual  losses  for  wear  and  tear,  and  obsolescence  of  struc- 
tures, machinery,  and  personalty  in  use  in  the  business. 

The  court  then  said  that  it  did  not  consider  the  statute  covered 
a  depreciation  of  a  mine  by  exhaustion  of  the  ores.  Von  Baumbach 
V.  Sargent  Land  Co.,  243  U.  8.  534.  See  also  Lumber  MuL  Fire 
Ins.  Co.  V.  Malley,  356  Fed.  383;  Baldwin  L.  Works  v.  McCoach,  231 
Fed.  5i);  Van  Dyke  v.  Milwaukee,  15!J  Wis.  400. 

Plaintiff's  claim  that  this  question  is  not  within  the  issues  in  this 
case  is  clearly  overborne  by  its  second  and  eleventh  assignments  of 
reasons  why  the  tax  is  excessive  and  illegally  assessed,  viz : 

2.  No  greater  amount  of  taxes  should  have  been  .  .  .  collected 
...  for  the  year  lUOU  than  the  sum  of  $43,729.78,  etc. 

No.  11  is  similar.  It  seems  clear  that  a  suit  of  this  character  is 
for  all  purposes  a  contest  between  the  Government  and  the  tax- 
payer, the  question  being,  how  much  tax  should  the  plaintiff  have 
paid  ?  In  Crocker  v.  Malley,  249  U.  S.  223,  the  court  found  that 
the  tax  actually  assessed  against  the  plaintiffs  as  a  joint  stock  as- 
sociation was  improperly  assessed  and  collected  because  the  plain- 
tiffs were  not  a  joint  stock  association,  but  simply  trustees.  At 
page  335,  the  court  said: 

The  district  court,  while  it  found  for  the  plaintiffs,  ruled  that 
the  defendant  was  entitled  to  retain  .  .  .  the  amount  of  the  tax  that 
they  should  have  paid  as  trustees.  .  .  .  The  Commissioner  of  In- 
ternal Revenue  rejected  the  plaintiffs'  claim,  and  the  statute  does 
not  leave  the  matter  clear.  The  recovery,  therefore,  will  be  from 
the  United  States.  (Kev.  Stats.,  sec  989.)  The  plaintiffs,  as  they 
themselves  alleged  in  their  claim,  were  the  persons  taxed,  whether 
they  were  called  an  association  or  trustees.  They  were  taxed  too 
much.  If  the  United  States  retains  from  the  amount  received  by 
it  the  amount  that  it  should  have  received,  it  cannot  recover  that 
sum  in  a  subsequent  suit. 

See  also  Missouri  Eiver,  F.  S.  &  G.  R.  Co.  v.  United  States,  19 
Fed.  67.  Plaintiff  cites  the  Eaton  cases,  218  Fed.  188.  The  reason 
given  by  the  court,  in  the  first  case,  for  allowing  items  "  Bonds 
for  accrual  of  discount"  and  "Bonds  for  amortization  of  pre- 
miums "  is  — 

Because  the  testimony  shows  that  the  method  of  annually  scaling 
down  the  book  values  of  bonds  purchased  at  a  premium,  and  making 


496       FINK  V.  NOliTIIWESTEKN  MUTUAL  LIFE  IXS.  CO.      [CHAP.  VII. 

additions  to  the  book  value  of  bonds  purchased  below  par  ...  is  in 
accordance  with  the  law  and  the  requirements  of  the  insurance  de- 
partments of  the  diii'erent  States. 

The  record  here  shows  no  such  practice  by  plaintiff.  What  law 
that  action  was  in  accordance  with,  the  decision  does  not  say,  but  it 
certainly  was  not  in  accordance  with  the  excise  tax  act.  Whether  it 
was  in  accordance  with  the  requirements  of  the  insurance  depart- 
ments of  the  different  States  makes  no  difference.  The  only  clause, 
if  any,  under  the  excise  law  which  would  permit  the  commissioner 
to  exercise  any  influence  upon  deductions  is  the  following,  relating 
to  deductions:  "The  net  addition,  if  any,  required  by  law  to  be 
made  within  the  year  to  reserve  funds."  Under  authority  of  Mary- 
land Casualty  Co.  v.  United  States,  supra,  the  requirement  of  the 
insurance  commissioner  as  to  reserves  would  be  a  thing  "required 
by  law.'' 

We  are  of  opinion  that  decreases  in  value  of  assets  because  of 
amortization  of  premiums  on  bonds  were  not  a  proper  deduction, 
and  that  there  should  be  deducted  from  the  Judgment  of  the  court 
below  the  sum  of  $1,643.86,  with  interest  thereon  at  the  rate  of  6  per 
cent  from  January  22,  1912,  to  the  date  of  the  entry  of  the  original 
judgment  on  November  16,  1917. 

V. 

6.  Whether  an  addition  to  the  reserve  funds  because  of  liability 
on  supplementary  contracts  not  involving  life  contingencies  and  can- 
celed policies  upon  which  a  cash  surrender  value  may  be  demanded 
was  deductible  from  gross  income  under  the  act. 

The  excise  law  permits  insurance  companies  to  deduct  "the  net 
addition,  if  any,  required  by  law  to  be  made  within  the  year  to  re- 
serve funds." 

Section  1952  of  the  Wisconsin  State  law  provides : 

In  determining  the  amount  of  the  surplus  to  be  distributed  there 
.shall  be  reserved  an  amount  not  less  than  the  aggregate  net  value 
-of  all  the  outstanding  policies. 

Under  this  section  and  section  1950,  the  insurance  commissioner 
of  Wisconsin,  as  of  December  31,  in  the  years  1908,  1909,  and  1910, 
certified  his  computation  of  reserves,  and  did  not  include  reserves  as 
against  the  contracts  in  question. 

All  the  actuary  would  say  about  what  was  required  by  the  insur- 
ance commissioner  with  reference  to  the  reserve  in  question  was,  that 
the  blank  that  the  company  was  compelled  to  fill  in  contained  an 
item  "resen^e  liabilities,"  but  that  no  such  item  was  included  in 
^^net  reserve  funds." 

Section  1946x  defines  "'reserve'  at  any  time  within  the  policy 
year"  and  "terminal  reserve."     The  latter  is  defined  to  be  — 

The  sum  sufficient,  with  the  net  premiums  coming  due,  to  provide 
for  the  future  mortality  charges,  and  mature  the  policy  according 


SECT.  IV.]       FINK  V.  NOKTIIWESTEEN  MUTUAL  LIFE  INS.  CO.       497 

to  its  terms,  all  computed  upon  the  table  of  mortality  adopted  and 
the  rate  of  interest  assumed. 

The  end  to  be  reached  in  life  insurance  is  to  mature  the  policy 
by  building  up  a  resen'e.  The  basis  of  arriving  at  that  desired  end 
is  the  table  of  mortality  and  the  rate  of  interest  assumed,  and  by  the 
use  of  them  the  net  premium  is  fixed  and  the  reserve  is  built  up 
from  net  premiums.  Kepeating  the  process  of  making  the  terminal 
reserve  from  year  to  year,  until  the  time  when  the  payment  of  pre- 
miums ceases,  matures  the  policy.  The  net  premium  coming  due  is 
the  foundation  of  the  reserve.     Actuary  Evans  states  it  thus: 

The  reserve  is  the  balance  of  cash  that  the  company  must  have 
on  hand  in  order  to  pay  out  the  contract,  assuming  that  the  future 
premiums  under  the  policy  are  paid  to  the  company,  or,  in  other 
words,  the  increase  in  the  reserve  on  the  policy  would  be,  specifically, 
the  amount  of  the  premium  for  that  year  paid  in,  interest  on  the 
entire  sum,  and  the  cost  of  the  insurance  deducted. 

The  assistant  secretary  (Anderson)  explained  that  — 

WTien  the  policy  becomes  a  claim,  it  is  charged  off  in  the  death 
loss  account  as  a  disbursement  .  .  .  for  the  full  amount  of  the  .  .  . 
policy. 

When  asked  what,  if  anything,  is  deducted  from  the  general  re- 
serve fund  when  death  occurs,  he  answered: 

A  corresponding  amount  to  the  death  loss  which  was  taken  out 
of  disbursements  —  the  reserve  —  is  held  on  that  policy.  I  mean 
that  one  part  of  reserve  account  is  wiped  out  and  another  created. 

Just  here  is  the  misconception  as  to  what  is  a  life  insurance  re- 
serve. The  reserve  meant  in  the  law  is  that  fund  which  is  built  up 
to  mature  the  policy.  Of  course,  at  the  time  when  the  money  is 
taken  out  of  the  reserve  account  and  is  not  used  for  immediate  pay- 
ment, it  must  be  held  somehow.  In  otlier  words,  it  is  reserved  for 
the  purpose  of  future  payment.  The  full  amount  is  there  at  the 
beginning,  and  there  is  nothing  that  has  to  be  built  up  or  matured. 
Nothing  more  can  be  reserved  on  that  account. 

We  are  of  opinion  that  the  decrease  in  the  net  value  of  assets  be- 
cause of  amortization  of  premiums  on  bonds  was  not  proper,  and 
that  the  decrease  in  the  net  value  of  assets  because  of  liability  on 
supplementary  contracts  not  involving  life  contingencies  and  can- 
celed polices  upon  which  a  cash  surrender  value  may  be  demanded 
was  not  proper,  and  that  there  should  be  deducted  from  the  judg- 
ment of  the  court  below  on  account  of  the  first  item  tiie  sum  of 
$1,643.86  and  on  account  of  the  latter  item  the  sum  of  $9,969.08, 
an  aggregate  of  $11,612.94,  as  of  January  22,  1912,  and  that  judg- 
ment should  be  entered  for  the  sum  of  $131,755.84,  being  the  princi- 
pal of  the  original  judgment  less  said  sum  of  $11,612.94,  with  interest 
thereon  at  6  per  cent  from  January  22,  1912,  with  costs  in  the 
district  court,  which  said  interest  amounts,  to  the  date  of  the  entry 


498  MccoACir  i\  ins.  co.  of  north  amkkica.      [chap.  vii. 

of  the  judgment  in  the  district  court  on  December  16,  1917,  to 
$46,641.57.  It  is  adjudged  that  each  party  pay  its  own  costs  of  the 
proceedings  in  tliis  court. 

McCOACH  V.  INSUKANCE  COMPANY  OF  NOETH 
AMERICA. 

Supreme  Court  of  the  United  States.     1917. 

[Reported  244  U.  S.  585.] 

Mr.  Justice  Pitney  delivered  the  opinion  of  the  court. 
This  was  an  action  brought  by  respondent,  a  tire  and  marine  in- 
surance company  of  the  State  of  Pennsylvania,  to  recover  a  part  of 
the  excise  taxes  exacted  of  it  for  the  years  1910  and  1911  under  the 
act  of  August  5,  1909  (chap.  6,  §  38,  36  Stat.  11,  112).  As  the  case 
comes  here,  only  two  items  are  in  dispute,  one  for  each  of  the  years 
mentioned,  representing  the  tax  upon  amounts  added  in  each  of 
those  years  to  that  part  of  what  are  called  its  "  reserve  funds  "  that 
is  held  against  accrued  but  unpaid  losses. 

The  act  imposed  upon  every  insurance  company  organized  under 
the  laws  of  the  United  States  or  of  any  State  an  annual  excise  tax 
with  respect  to  the  carrying  on  or  doing  business  equivalent  to  1  per 
cent  upon  its  entire  net  income  over  and  above  $5,000,  with  excep- 
tions not  here  pertinent.  The  second  paragraph  of  section  38  pro- 
vided : 

Such  net  income  shall  be  ascertained  by  deducting  from  the  gross 
amount  of  the  income  of  such  .  .  .  insurance  company  .  .  .  (second) 
all  losses  actually  sustained  within  the  year  and  not  compensated 
by  insurance  or  otherwise,  including  a  reasonable  allowance  for  de- 
preciation of  property,  if  any,  and  in  the  case  of  insurance  com- 
panies the  sums  other  than  dividends  paid  within  the  year  on  policy 
and  annuity  contracts  and  the  net  addition,  if  any,  required  by  law 
to  be  made  within  the  year  to  reserve  funds. 

The  italics  indicate  the  particular  words  upon  which  the  contro- 
versy turns,  the  question  being  whether,  within  the  meaning  of  the 
act  of  Congress,  "reserve  funds,"  with  annual  or  occasional  addi- 
tions, are  "  required  by  law/'  in  Pennsylvania,  to  be  maintained  by 
fire  and  marine  insurance  companies,  other  than  the  "unearned 
premium"  or  "reinsurance  reserve,"  known  to  the  general  law  of 
insurance. 

The  District  Court  rendered  a  judgment  in  plaintiff's  favor,  ex- 
cluding, however,  the  disputed  items  (218  Fed.  905).  On  plain- 
tiff's writ  of  error  the  Circuit  Court  of  Appeals  reversed  this 
judgment,  with  instructions  to  allow  the  claim  in  full  (224  Fed. 
657),  and  the  case  was  brought  here  by  writ  of  certiorari. 

Plaintiff  was  chartered  by  a  special  act,  but  is  subject  to  the  State 

insurance  law.    Its  business  is  confined  to  fire  and  marine  insurance. 

The  law  of  Pennsylvania  (act  of  June  1,  1911,  P.  L.  607,  608) 

creates  a  State  insurance  commissioner  with  supervisory  control  over 


SECT.   IV.]         MCCOACll   V.   I^'S.   CO.  OF  NOKTII  AMKiMCA.  409 

the  companies;  provides  in  section  4  that  he  shall  see  that  all  tiie  laws 
of  the  Commonwealth  respecting  insurance  companies  are  faithfully 
executed,  authorizing  him  to  make  examinations,  to  have  access  to 
all  the  books  and  papers  of  any  company,  to  examine  witnesses 
relative  to  its  affairs,  transactions,  and  condition,  to  publish  the  re- 
sult of  his  examination  when  he  deems  it  for  the  interest  of  the 
policyholders  to  do  so,  and  to  suspend  the  entire  business  of  any 
company  during  its  noncompliance  with  any  provision  of  law  obliga- 
tory upon  it,  or  whenever  he  shall  find  that  its  assets  are  insufli- 
cient  to  justify  itij  continuance  in  business,  and  whenever  he  finds 
any  company  to  be  insolvent  or  fraudulently  conducted,  or  its  assets 
insufficient  for  the  carrying  on  of  it«  business,  he  is  to  communicate 
the  facts  to  the  attorney  general.  J5y  section  15  every  insurance 
company  is  required  to  file  annual  statements  with  the  commissioner, 
upon  blank  forms  to  be  furnished  by  him,  such  as  shall  seem  to  him 
best  adapted  to  elicit  a  true  exhibit  of  their  financial  condition. 
Sections  7,  8,  and  9,  set  forth  in  the  margin,^  make  specific  pro- 
visions for  ascertaining  the  reserve  for  different  classes  of  companies 
other  than  life  insurance  companies.  Anotlier  act  of  the  same  date 
(P.  L.  1911,  p.  5!)9)  provides  for  judicial  proceedings  at  the  instance 
of  the  insurance  commissioner  looking  to  the  dissohition  of  insolvent 
and  delinquent  companies.     Its  provisions  need  not  be  quoted. 

A  previous  act  (April  4,  1873,  P.  L.  20,  22)  required  a  specific 
reinsurance  reserve  against  unexpired  risks  on  fire,  marine,  and  in- 
land policies.  The  act  of  1911,  just  quoted,  requires  the  maintenance 
of  a  substimtially  similar  reserve;  and,  with  respect  to  casualty  com- 
panies and  these  only,  that  a  reserve  be  maintained  against  unpaid 

'  Sec.  7.  In  determinin<r  the  liabilities  upon  its  contracts  of  insurance 
of  any  insurance  company  otlier  tlian  life  insurance,  and  tlie  amount  such 
company  should  hold  as  a  reserve  far  reinsurance,  he  shall,  for  casualty 
insurance  companies,  charge  one-half  of  the  premium  on  all  annual  policies 
written  within  one  year,  and  on  policies  written  for  more  than  one  year  he 
shall  charge  one-half  of  the  current  year's  premiums  plus  the  whole  of  the 
premiums  for  suljscquent  years.  For  fire  insurance  companies  he  shall 
charge  fifty  per  centum  of  the  premiums  written  in  their  policies  upon  all 
unexpired  risks  that  have  one  year  or  less  than  one  year  to  run,  and  a  pru 
rata  of  all  premiums  on  risks  having  more  than  one  year  to  run ;  on  per- 
petual policies  he  shall  charge  the  deposit  received  less  a  surrender  charge 
of  not  exceeding  ten  per  centum  thereof.  For  marine  and  inland  risks  he  shall 
charge  fifty  per  centum  of  the  premium  written  in  the  policy  upon  yearly 
risks,  and  the  full  amount  of  the  j)remium  written  in  the  policy  upon  all 
other  marine  and  inland   risks  not  terminated. 

Sec.  8.  He  shall,  in  calculating  the  reserve  against  unpaid  losses  of  casu- 
alty  companies,  other  than  losses  under  liability  policies,  set  down  by  care- 
ful estimate  in  each  case  the  loss  likely  to  be  incurred  against  everv  claim 
presented,  or  that  may  be  presented  in  f)ursuance  of  notice  from  tlie  "insured 
of  the  occurrence  of  an  event  tliat  may  result  in  a  loss,  and  the  sum  of  the 
items  so  estimated  shall   be  the  total   amount   of  the  reserve  .  .  . 

Skc.  0.  Having  charged  as  a  liability  the  reinsurance  and  loss  reserves, 
as  above  defined  for  insurance  companies  of  this  Commonwealth  other  than 
life,  and  adding  thereto  all  other  del)ts  and  claims  agjiinst  the  company, 
the  commissioner  shall,  in  case  he  finds  the  capital  of  the  company  im- 
paired twenty  per  centum,  give  notice  to  the  company  to  make  good  the 
capital   within  sixty  days  .  .  . 


500  MCCOACH   v.  IXS.    CO.   OF   XOETII  AMERICA.        [cHAP.   Vll. 

losses  based  upon  the  amount  of  claims  presented.  The  reference 
in  section  9  to  "  reinsurance  and  loss  reserves  as  above  defined  "  is 
limited  by  what  precedes  it ;  and  the  section  deals  not  alone  with 
"  reserves "  but  requires  "  all  other  debts  and  claims  "  to  be  ac- 
counted as  liabilities. 

It  appears  that  under  this  legislation,  and  under  previous  statutes 
in  force  since  18T3,  the  insurance  commissioner  has  required  plain- 
tiff and  similar  companies  to  return  each  year,  as  an  item  among 
their  liabilities,  the  net  amount  of  unpaid  losses  and  claims,  whether 
actually  adjusted,  in  process  of  adjustment,  or  resisted.  And,  al- 
though this  practice  has  not  been  sanctioned  by  any  decision  of  the 
Supreme  Court  of  the  State,  it  is  relied  upon  as  an  administrative 
interpretation  of  the  law. 

Conceding  full  effect  to  this,  it  still  does  not  answer  the  question 
whether  the  amounts  required  to  be  held  against  unpaid  losses,  in. 
the  case  of  fire  and  marine  insurance  companies,  are  held  as  "  re- 
serves" within  the  meaning  of  the  Pennsylvania  law  or  of  the  act 
of  Congress,  however  they  may  be  designated  upon  the  official  forms. 
As  already  appears,  the  Pennsylvania  act  specifically  requires  debts 
and  claims  of  all  kinds  to  be  included  in  the  statement  of  liabilities, 
and  treats  them  as  something  distinct  from  reserves.  The  object  is 
to  exercise  abundant  caution  to  maintain  the  companies  in  a  secure 
financial  position. 

The  act  of  Congress,  on  the  other  hand,  deals  with  reserves  not 
particularly  in  their  bearing  upon  the  solvency  of  the  company  but 
as  they  aid  in  determining  what  part  of  the  gross  income  ought  to 
be  treated  as  net  income  for  purposes  of  taxation.  There  is  a  specific 
provision  for  deducting  "all  losses  actually  sustained  within  the 
year  and  not  compensated  by  insurance  or  otherwise.'*  And  this 
is  a  sufficient  indication  that  losses  in  immediate  contemplation  but 
not  as  yet  actually  sustained  were  not  intended  to  be  treated  as  part 
of  the  reserve  funds,  that  term  rather  having  reference  to  the  funds 
ordinarily  held  as  against  the  contingent  liability  on  outstanding 
policies. 

In  our  opinion,  the  reserve  against  unpaid  losses  is  not  "re- 
quired by  law"  in  Pennsylvania  within  the  meaning  of  the  act  of 
Congress. 

It  results  that  the  judgment  of  the  Circuit  Court  of  Appeals 
should  be  reversed  and  that  of  the  District  Court  affirmed. 

Reversed. 

The  Chief  Justice  and  ]\rr.  Justice  McKenna  dissent. 

Mr.  Justice  McEeyxolds  took  no  part  in  the  consideration  or  de- 
cision of  the  case. 


SECT.    IV.]  MAKYLAND   CASUALTY    CO.    V.    LMTED   STATES.  501 

MARYLAND  CASUALTY  CO.  v.  UXITED  STATES. 
Supreme  Court  of  the  United  States.     1920. 

[Reported  251   U.  S.  342.] 

Clarke,  J.  Under  warrant  of  the  act  of  Congress  approved 
August  5,  1909  (36  Stat.,  ch.  6,  pp.  11,  113),  the  Ciovernment  col- 
lected from  the  claimant,  a  corporation  organized  as  an  insurance 
company  under  the  laws  of  Maryland,  an  excise  tax  for  the  years 
1909,  1910,  1911,  and  1912,  and,  under  warrant  of  the  act  of  Con- 
gress of  October  3,  1913  (38  Stat.,  ch.  16,  pp.  114,  1G6),  it  likewise 
collected  an  excise  tax  for  the  first  two  months  of  1913  and  an  in- 
come tax  for  the  remaining  months  of  that  year. 

This  suit,  instituted  in  the  Court  of  Claims,  to  recover  portions 
of  such  payments  claimed  to  have  been  unlawfully  collected,  is  here 
for  review  upon  appeal  from  the  judgment  of  that  court. 

The  claimant  was  engaged  in  casualty,  liability,  fidelity,  guaranty, 
and  surety  insurance,  but  the  larger  part  of  its  business  was  em- 
ployers' liability,  accident,  and,  in  the  later  of  the  years  under  con- 
sideration in  this  case,  workmen's  compensation  insurance. 

By  process  of  elimination  the  essential  questions  of  difference  be- 
tween the  parties  ultimately  became  three,  viz. : 

(1)  Should  claimant  be  charged,  as  a  part  of  its  gross  income 
each  year,  with  premiums  collected  by  agents  but  not  transmitted 
by  them  to  its  treasurer  within  the  year  ? 

(2)  May  the  amount  of  gross  income  of  the  claimant  be  reduced 
by  the  aggregate  amount  of  the  taxes,  salaries,  brokerage,  and  re- 
insurance unpaid  at  the  end  of  each  year,  under  the  provisions  in 
both  the  excise  and  income  tax  laws  allowing  deductions  of  "net 
addition,  if  any,  required  by  law  to  be  made  within  the  year  to 
reserve  funds  "  ? 

(3)  Should  the  decrease  in  the  amount  of  reserve  funds  required 
by  law  for  the  year  1913  from  the  amount  required  for  1912  be 
treated  as  "released  reserve"  and  charged  to  the  company  as  in- 
come for  1913? 

Of  these  in  the  order  stated. 

Section  38  of  the  excise  tax  act  (36  Stat.  11'2)  provides  that  every 
corporation  organized  under  the  laws  of  any  State  as  an  insurance 
company  "  shall  be  subject  to  pay  annually  a  special  excise  tax  with 
respect  to  the  carrying  on  or  doing  business  .  .  ,  equivalent  to  1  per 
centum  upon  the  entire  net  income  .  .  .  received  by  it  from  all 
sources  during  such  year." 

The  income  tax  act  (38  Stat.  172)  provides  (sec.  G,  paragraph 
(a) )  that  the  tax  shall  be  levied  upon  the  entire  "  net  income  arising 
or  accruing  from  all  sources  during  the  preceding  calendar  year." 
But  in  paragraph  (b),  providing  for  deductions,  gross  income  is  de- 
scribed as  that  ^'received  within  the  year  from  all  sources."  So 
that,  with  respect  to  domestic  corporations,  it  is  clear  enough  that 
no  change  was  intended  by  the  use  of  the  expression  "  arising  or  ac- 


9 
502  MAEYLAND  CASUALTY   CO,   V.   UNITED  STATES.        [ciIAP.   VII. 

cruing"  in  tlie  income  tax  act,  and  that  the  tax  should  be  levied 
under  both  acts  upon  the  income  "received"  during  the  year. 
Southern  Pacific  Co.  v.  Lowe,  347  U.  S.  330,  335. 

The  claimant  did  business  in  many  States,  through  many  agents, 
with  whom  it  had  uniform  written  contracts  which  allowed  them 
to  extend  the  time  i'or  payment  of  the  premiums  on  policies,  not  to 
exceed  30  days  from  the  date  of  policy,  and  required  that  on  the 
fifth  day  of  each  calendar  month  they  should  pay  or  remit,  in  cash 
or  its  equivalent,  the  balance  due  claimant  as  shown  by  the  last  pre- 
ceding monthly  statement  rendered  to  it. 

Under  the  provisions  of  such  contracts  obviously  the  agents  were 
not  required  to  remit  premiums  on  policies  written  in  November 
until  the  fifth  of  January  of  the  next  year  and  on  policies  written 
in  December  not  until  the  following  February. 

Much  the  largest  item  of  the  gross  income  of  the  company  was 
premiums  collected  on  policies  of  various  kinds.  Omitting  reference 
to  earlier  and  tentative  returns  by  the  claimant  and  amendments  by 
the  Government,  it  came  about  that  claimant  took  the  final  position 
that  the  only  premiums  with  which  it  could  properly  be  charged  as 
net  income  "received  by  it  .  .  .  during  each  year"  were  such  as 
were  collected  and  actually  paid  to  its  treasurer  within  the  year. 
This  involved  omitting  from  gross  income  each  year  "premiums  in 
course  of  collection  by  agents,  not  reported  on  December  31,"  which 
varied  in  amount  from  $584,000  in  one  year  to  $1,020,000  in  an- 
other. The  amount,  if  deducted  one  year,  might  appear  in  the 
return  of  the  claimant  for  the  next  year,  but  the  rate  might  be 
different. 

The  Government,  on  the  other  hand,  contended  that  the  claimant 
should  return  the  full  amount  of  premiums  on  policies  written  in 
each  year,  whether  actually  collected  or  not. 

The  Court  of  Claims  refused  to  accept  the  construction  of  either 
of  the  parties  and  held  that  the  claimant  should  have  returned,  not 
all  premiums  written  by  it,  but  all  which  were  actually  received  by  it 
during  the  year  and  that  receipt  by  its  agents  was  receipt  by  the 
company,  within  the  meaning  of  the  act  of  Congress. 

The  claimant  contends  that  premiums  paid  to  its  agents  but  not 
remitted  to  its  treasurer  were  not  "  received  by  it  during  the  year," 
chiefly  for  the  reason  that  while  in  possession  of  the  agents  the 
money  could  not  be  attached  as  the  company's  property  (Maxwell  v. 
McGee,  66  Mass.  137),  and  because  money,  while  thus  in  the  pos- 
session of  agents  was  not  subject  to  beneficial  use  by  the  claimant 
and  therefore  cannot,  with  propriety,  be  said  to  have  been  received 
by  it,  within  the  meaning  of  the  act. 

On  the  other  hand  it  is  conclusively  argued:  That  payment  of 
the  premium  to  the  agent  discharged  the  obligation  of  the  insured 
and  called  into  effect  the  obligation  of  the  insurer  as  fully  as  pay- 
ment to  the  treasurer  of  the  claimant  could  have  done;  that  in  the 
popular  or  generally  accepted  meaning  of  the  words  "received  by 
it"  (which  must  be  given  to  them,  Maillard  v.  Lawrence,  16  How. 
251),  receipt  by  an  agent  is  regarded  as  receipt  by  his  principal ;  that 


SECT.  IV.]       MARYLAND  CASLAJ.TV   CO.   V.  UNITED  STATES.  503 

under  their  contract  collected  premiums  in  possession  of  the  agents 
of  the  claimant  were  subject  to  use  by  it  in  an  important  respect 
before  they  were  transmitted  to  the  treasurer  of  the  company,  for 
the  agency  contract  provided  tiiat  "  the  agent  will  pay  on  demand, 
out  of  any  funds  collected  by  him  for  account  of  premium  and  not 
remitted  to  the  company,  such  drafts  as  may  be  drawn  on  him  by  the 
company  .  .  .  for  the  purpose  of  settling  claims,  deducting  the 
amount  from  the  next  succeeding  monthly  remittance";  and  that 
only  imperative  language  in  the  statute  would  justify  a  construction 
which  would  place  it  in  the  power  of  the  claimant,  by  private  con- 
tract with  its  agents,  to  shift  payment  of  taxes  frotn  one  taxing 
year  into  another. 

The  claimant  withheld  from  its  returns  collections  in  the  custody 
of  its  agents  at  the  end  of  each  year,  and  because  in  its  amendments 
the  (jovernment  had  included  all  premiums  written  in  each  year, 
whether  or  not  collected,  the  Court  of  Claims,  having  reached  the 
conclusion  thus  approved  by  us,  allowed  the  claimant  90  days  in 
which  to  show  the  amount  of  premiums  received  by  it  and  its  agents 
within  each  of  the  years  in  controversy,  but  the  claimant  failed  to 
make  such  a  sliowing,  and  thereupon  the  court  treated  the  return  of 
premiums  written  as  the  correct  one  and  very  properly,  so  far  as 
this  item  is  concerned,  dismissed  claimant's  petition. 

Second.  In  the  same  words  the  excise  and  income  tax  acts  pro- 
vide that  "the  net  addition,  if  any,  required  by  law  to  be  made 
within  the  year  to  reserve  funds"  may  be  deducted  from  gross  in 
determining  the  amount  of  net  income  to  be  taxed. 

Finding  its  authority  in  this  provision  of  the  law,  the  claimant 
in  all  of  its  returns  treated  as  "reserves,"  for  the  purpose  of  deter- 
mining whether  the  aggregate  amount  of  them  each  year  was  greater 
or  less  than  in  the  preceding  year,  and  of  thereby  arriving  at  the 
"net  addition  to  reserve  funds"  which  it  was  authorized  to  deduct 
from  gross  income,  the  following,  among  others,  viz,  "  reserve  for 
unearned  premiums,"  "  special  reserve  for  unpaid  liability  losses," 
and  "  loss  claims  reserve."  Unearned  premium  reserve  and  special 
reserve  for  unpaid  liability  losses  are  familiar  types  of  insurance 
reserves,  and  the  Government  in  its  amended  returns  allowed  these 
two  items,  but  rejected  the  third,  "loss  claims  reserve." 

The  Court  of  Claims,  somewhat  obscurely,  held  that  the  third 
item  should  also  be  allowed.  This  "loss  claims  reserve"  was  in- 
tended to  provide  for  the  liquidation  of  claims  for  unsettled  losses 
(other  than  those  provided  for  by  the  reserve  for  liability  losses) 
which  had  accrued  at  the  end  of  the  tax  year  for  which  the  return  was 
made  and  the  reserve  computed.  The  finding  that  the  insurance  de- 
partment of  Pennsylvania,  pursuant  to  statute,  has  at  all  times  since 
and  including  1909  required  claimant  to  keep  on  hand,  as  a  con- 
dition of  doing  business  in  that  State,  "  assets  as  reserves  sufficient 
to  cover  outstanding  losses,"  justifies  the  deduction  of  this  reserve 
as  one  required  by  law  to  be  maintained,  and  the  holding  that  it 
should  have  been  allowed  for  all  of  the  years  involved  is  approved. 

But  the  Court  of  Claims  approved  the  action  of  the  Government 


504  MARYLAND  CASUALTY   CO.   V.   UNITED  STATES.        [cilAP.  VII. 

in  rejecting  other  claimed  deductions  of  reserves  for  "unpaid  taxes, 
salaries,  brokerage,  and  reinsurance  due  other  companies."  The 
court  gave  as  its  reason  for  this  conclusion  tliat  the  "  net  addition, 
if  any,  required  by  law  to  be  made  within  the  year  to  reserve  funds," 
which  the  act  of  Congress  permitted  to  be  deducted  from  gross  in- 
come, was  limited  to  reserves  required  by  express  statutory  provision, 
and  did  not  apply  to  reserves  required  by  the  rules  and  regulations 
of  State  insurance  departments  when  promulgated  in  the  exercise 
of  an  appropriate  power  conferred  by  statute. 

In  this  the  Court  of  Claims  fell  into  error.  It  is  settled  by  many 
recent  decisions  of  this  court  that  a  regulation  by  a  department  of 
Government  addressed  to  and  reasonably  adapted  to  the  enforcement 
of  an  act  of  Congress,  the  administration  of  which  is  confided  to  such 
department,  has  the  force  and  efEect  of  law  if  it  be  not  in  conflict 
with  express  statutory  provision.  United  States  v.  Grimaud,  230 
U.  S.  506;  United  States  v.  Birdsall,  233  U.  S.  223,  231;  United 
States  V.  Smull,  236  U.  S.  405,  409,  411;  United  States  v.  More- 
head,  243  U.  S.  607.  The  law  is  not  different  with  respect  to  the 
rules  and  regulations  of  a  department  of  a  State  government. 

But  it  is  contended  by  the  claimant  that  it  was  required  to  provide 
"resen^es"  for  the  payment  of  the  rejected  items  of  liability,  be- 
cause the  Court  of  Claims  found  that  pursuant  to  statutes  the  in- 
surance department  of  Pennsylvania  required  the  company,  as  a 
condition  of  doing  business  in  that  State,  to  keep  on  hand  "  assets 
as  reserves "  sufficient  to  cover  all  claims  against  the  company, 
"  whether  due  or  accrued  " ;  because  the  department  of  New  York 
required  it  to  maintain  "  reserves  sufficient  to  meet  all  of  its  accrued 
but  unpaid  indebtedness  in  each  year  " ;  and  because  the  department 
of  Wisconsin  required  it  to  carry  "  sufficient  reserves  to  cover  all  of 
its  outstanding  liabilities." 

"WTiether  this  contention  of  the  claimant  can  be  justified  or  not 
depends  upon  the  meaning  which  is  to  be  given  to  the  words  "re- 
serve funds"  in  the  two  acts  of  Congress  we  are  considering. 

The  term  "  reserve  "  or  "  reserves  "  has  a  special  meaning  in  the 
law  of  insurance.  While  its  scope  varies  under  different  laws,  in 
general  it  means  a  sum  of  money,  variously  computed  or  estimated, 
which,  with  accretions  from  interest,  is  set  aside,  "  reserved,"  as  a  fund 
with  which  to  mature  or  liquidate,  either  by  payment  or  reinsurance 
with  other  companies,  future  unaccrued  and  contingent  claims,  and 
claims  accrued,  but  contingent  and  indefinite  as  to  amount  or  time 
of  payment. 

In  this  case,  as  we  have  seen,  the  term  includes  "unearned  pre- 
mium reserve"  to  meet  future  liabilites  on  policies,  "liability  re- 
serve "  to  satisfy  claims,  indefinite  in  amount  and  as  to  time  of 
payment,  but  accrued  on  liability  and  workmen's  compensation  pol- 
icies, and  "reserve  for  loss  claims"  accrued  on  policies  other  than 
those  provided  for  in  the  "  liability  reserve,"  but  it  has  nowhere  been 
held  that  "reserve,"  in  this  technical  sense,  must  be  maintained  to 
provide  for  the  ordinary  running  expenses  of  a  business,  definite  in 
amount  and  which  must  be  currently  paid  by  every  company  from 


SECT.  IV.]        MARYLAND  CASUALTY   CO.    V.  UNITED  STATES.  505 

its  income  it'  its  business  is  to  continue,  such  as  taxes,  salaries,  rein- 
surance, and  unpaid  brokerage. 

The  requirements  relied  upon,  of  the  insurance  departments  of 
New  York,  Pennsylvania,  and  Wisconsin  that  "assets  as  reserves" 
must  be  maintained  to  cover  "all  claims,"  ''all  imlebtedness,"  "all 
outstanding  liabilities,"  in  terms  might  include  the  rejected  items 
we  are  considering,  but  plainly  the  departments,  in  these  expressions, 
used  the  word  "reserves"  in  a  nonteclinical  sense  as  e(|uivalent  to 
"assets,"  as  is  illustrated  by  the  ^Massachusetts  requirement  that  each 
company  shall  "  hold  or  reserve  assets"  for  the  paymcjit  of  all  claims 
and  obligations.  The  distinction  between  the  "reserves"  and  general 
assets  of  a  company  is  obvious  and  familiar  and  runs  through  the 
statements  of  claimant  and  every  other  insurance  company.  That 
provision  for  the  payment  of  ordinary  expenses  such  as  we  are  consid- 
ering was  not  intended  to  be  provided  for  and  included  in  "  reserve 
funds,"  as  the  term  is  used  in  the  acts  of  Congress,  is  plain  from 
the  fact  that  the  acts  permit  deductions  for  such  charges  from  income 
if  paid  within  the  year,  and  the  claimant  was  permitted  in  this  case 
to  deduct  large  sums  for  such  ordinary  expenses  of  the  business  — 
specifically,  large  sums  for  taxes.  The  claimant  did  not  regard  any 
such  charges  as  properly  covered  by  "  reserves  "  and  did  not  so  include 
them  in  its  statement  for  1909.  In  its  1910  return  "unpaid  taxes" 
and  "salaries"  first  appear  as  "reserves,"  and  in  1911  "brokerage" 
and  "reinsurance"  are  added.  This  earlier,  though  it  is  now 
claimed  to  have  been  an  uninstructed  or  inexpert,  interpretation  of 
the  language  of  the  acts,  was  nevertheless  the  candid  and  correct 
interpretation  of  it,  and  the  judgment  of  the  Court  of  Claims  in  this 
respect  is  approved. 

Third.  The  year  1913  was  the  only  one  of  those  under  consider- 
ation in  which  the  aggregate  amount  of  reserves  which  the  claimant 
"was  required  by  law  to  keep  fell  below  the  amount  so  required  for 
the  preceding  year.  The  Government  allowed  only  "unearned  pre- 
mium" and  "unpaid  liability  loss,"  reserves  to  be  considered  in 
determining  deductions.  In  1913  the  "unpaid  liability  loss  reserve" 
decrease  exceeded  the  "unearned  premium  reserve"  increase  by  over 
$2 TO, 000,  and  this  amount  the  Government  added  to  the  gross  income 
of  the  claimant  for  the  year,  calling  it  "released  reserve,"  on  the 
theory  that  the  difference  in  the  amount  of  the  reserves  for  the  two 
years  released  the  decrease  to  the  claimant  so  that  it  could  use  it  for 
its  general  purposes,  and  therefore  constituted  free  income  for  the 
year  1913,  in  which  the  decrease  occurred. 

This  theory  of  the  Government  was  accepted  by  the  Court  of 
Claims  and  the  addition  to  the  gross  income  was  approved. 

The  statute  does  not  in  terms  dispose  of  the  question  thus  pre- 
sented. 

Eeserves,  as  we  have  seen,  are  funds  set  apart  as  a  liability  in  the 
accounts  of  a  company  to  provide  for  the  payment  or  reinsurance  of 
specific,  contingent  liabilities.  They  are  held  not  only  as  security 
for  the  payment  of  claims  but  also  as  funds  from  which  pa^Tl■lents 
are  to  be  made.    The  amount  "  reserved  "  in  any  given  year  may  be 


506  MAKYLAXD  CASUALTY  CO.  V.  UNITED  STATES.        [ciIAP.  VH. 

greater  than  is  necessary  for  tlie  required  purposes,  or  it  may  be  less 
than  is  necessary,  but  the  fact  that  it  is  less  in  one  year  than  in  the 
preceding  year  does  not  necessarily  show  either  that  too  much  or 
too  little  was  reserved  for  the  former  year  —  it  simply  shows  that 
the  aggregate  reserve  requirement  for  the  second  year  is  less  than  for 
the  first,  and  this  may  be  due  to  various  causes.  If,  in  this  case, 
it  were  due  to  an  overestimate  of  reserves  for  1912,  with  a  resulting 
excessive  deduction  for  that  year  from  gross  income  and  if  such  ex- 
cess was  released  to  the  general  uses  of  the  company  and  increased 
its  free  assets  in  1913,  to  that  extent  it  should  very  properly  be 
treated  as  income  in  the  year  in  which  it  became  so  availal)le,  for  the 
reason  that  in  that  year,  for  the  first  time,  it  became  free  income, 
under  the  system  for  determining  net  income  provided  by  the  stat- 
ute, and  the  fact  that  it  came  into  the  possession  of  the  Company 
in  an  earlier  year  in  which  it  could  be  used  only  in  a  special  manner, 
which  permitted  it  to  become  nontaxable,  would  not  prevent  its 
being  considered  as  received  in  1913  for  the  purposes  of  taxation, 
within  the  meaning  of  the  act. 

The  findings  of  fact  in  this  case,  however,  do  not  show  that  the 
diminution  in  the  amount  of  required  reserves  was  due  to  excessive 
reserves  in  prior  years  or  to  any  other  cause  by  which  the  free  assets 
of  the  company  were  increased  in  the  year  1913,  and  the  following 
finding  of  fact  makes  strongly  against  such  a  conclusion: 

"The  decrease  in  employers'  liability  loss  reserve  for  1913,  des- 
ignated as  '  released  reserve,'  did  not  in  any  respect  affect  or  change 
claimant's  gross  income  or  disbursements,  as  shown  by  the  State  in- 
surance reports." 

It  would  not  be  difficult  to  suggest  conditions  under  which  the 
statutory  permit  to  deduct  net  additions  to  reserve  funds  would  re- 
sult in  double  deduction  in  favor  of  an  insurance  company,  but 
such  deductions  can  be  restored  to  income  again  only  where  it  is 
clearly  shown  that  subsequent  business  conditions  have  released  the 
amount  of  them  to  the  free  beneficial  use  of  the  company  in  a  real 
and  not  in  a  mere  bookkeeping  sense.  If  this  seemingly  favorable 
treatment  of  insurance  companies  is  to  be  otherwise  corrected  or 
changed,  it  is  for  Congress,  and  not  for  the  courts,  to  amend  the 
law. 

Since  the  findings  of  fact  before  us  do  not  make  the  clear  showing, 
which  must  be  required,  that  the  statutory  deduction  of  net  reserves 
in  prior  years  w^as  restored  to  the  free  use  of  the  claimant  in  1913, 
it  should  not  have  been  charged  as  income  with  the  decrease  in  that 
year,  and,  on  the  record  before  us,  the  holding  of  the  Court  of  Claims 
must  be  reversed. 

There  remains  the  question  as  to  the  statute  of  limitations. 

The  Government  concedes  that  the  case  is  in  time  with  respect  to 
the  amended  returns,  but  claims  that  it  is  barred  by  Eevised  Statutes, 
3226,  3227,  and  3228,  with  respect  to  taxes  paid  on  the  original  re- 
turns for  all  of  the  years  but  1913.  The  claimant  made  its  original 
returns  without  protest,  except  for  the  year  1909,  and,  without  ap- 
peal to  the  Commissioner  of  Internal  Revenue,  voluntarily  paid  the 


SECT.    IV.]  UNITED    STATES    L\    SAX    JUAN    COUNTY.  507 

taxes  computed  on  tliera  for  each  of  the  years.  Payment  was  made 
for  1009  in  June,  IDIU;  for  1910  in  .June,  1911;  for  1911  in  June, 
1912;  for  1912  in  June,  1913.  No  claim  for  a  refund  of  any  of 
these  payments  was  made  until  April  30,  1915,  and  then  the  claim 
was  in  treneral  terms  — 

"For  amounts  paid  hy  it  in  tiixes  which,  through  lack  of  inftjrma- 
tion  as  to  requirements  of  law  or  hy  error  in  computation,  it  may 
have  paid  in  excess  of  the  amount  lej^ally  due." 

This  claim  was  rejected  subsequent  to  the  institution  of  this  suit, 
which  was  commenced  on  February  8,  19 16. 

This  statement  shows  the  right  of  the  claimant  plainly  barred  by 
its  failure  to  appeal  to  the  Commissioner  of  Internal  Kevenue,  Re- 
vised Statutes,  3"s?"v^G,  [this  is  fundamental,  Kings  County  Savings 
Institution  v.  Blair,  IIG  U.  S.  20()|  and  also  by  its  failure  to  institute 
suit  within  two  years  after  the  cause  of  action  accrued,  Revised 
Statutes,  322:. 

The  claimant  contends  that  the  amended  returns  filed  by  the  Com- 
nissioner  of  Internal  Revenue  were  not  amendments  or  modifications 
of  the  original  returns,  but  were  based  upon  a  different  principle 
and,  within  the  scope  of  Cheatham  el  ah  v.  United  States,  92  U.  S. 
85,  constituted  new  assessments  from  which  appeals  were  taken  in 
time. 

But  they  are  denominated  "amended  returns,"  and,  while  in  deal- 
ing witii  the  same  items  the  basis  of  computation  was  in  some  cases 
varied,  in  each  case  the  purpose  and  effect  of  them  was  to  increase 
the  payment  which  the  claimant  was  required  to  make  under  the 
law,  and  the  payments  made  on  the  original  returns  were  credited 
on  the  amount  computed  as  due  on  the  returns  as  amended. 

The  inapplicability  of  Cheatham  et  al.  v.  United  States,  92  U.  S. 
85,  is  obvious,  and  the  contention  that  the  filing  of  the  amended 
returns  constituted  the  beginning  of  new  proceedings,  which  so  su- 
persefied  the  original  returns  as  to  release  the  claimant  from  its 
entire  failure  to  observe  the  statutory  requirement  for  review  of  the 
latter,  is  so  unfounded  that  we  cannot  consent  to  enter  upon  a  de- 
tailed discussion  of  it.  This  conclusion  renders  section  14  of  the 
act  of  Congress  of  September  8,  1016  (39  Stat.  772),  inapplicable. 

It  results  that  the  judgment  of  the  Court  of  Claims  is  modified 
and  as  so  niodified  affirmed,  and  the  case  is  remanded  to  tliat  court 
for  proceedings  in  accordance  with  this  opinion. 


UNITED  STATES  v.  SAN  JUAX  COUNTY. 
District  Court  of  the  United  States.     1922. 

{liep(yrted  280  Fed.  120.] 

Neteree.  Dist.  .T.  The  San  Juan  Canning  Company,  an  in- 
solvent corporation,  is  indebted  to  the  Ignited  States  by  reason 
of    income   tax   and   penalties   for   year    1917.      On    the    28th    of 


508  UNITED  STATES    V.    SAN    JUAN   COUNTY.        [CIIAP.   VII. 

May,  1921,  after  demand  and  refusal  to  pa}^  a  warrant  of  distraint 
was  levied  upon  the  personal  property  of  the  canning  company, 
located  in  San  Juan  County,  and  sale  advertised  for  June  15,  1*J31. 
Thereafter,  the  sheriff  of  San  Juan  County  levied  upon  the  property 
to  collect  the  State  and  county  taxes  for  years  1918,  1919,  1920, 
and  advertised  the  property  for  sale  June  10,  1921.  On  application 
of  plaintiff  the  restraining  order  was  issued  and  served  upon  the 
sheriff. 

The  issue  now  for  determination  is  the  priority  of  the  claims. 
The  plaintiff  claims  that  under  section  3466,  Revised  Statutes 
(6372  C.  S.,  Act  of  March  3,  1797),  the  United  States  has  priority. 
The  county  contends  the  contrary  and  cites  United  States  v.  Nichols, 
4  Yeates  (Pa.),  251,  where  the  court  at  page  259  says: 

The  rights  of  the  General  Government  to  priority  of  payment,  and 
the  rights  of  individual  States,  are  contemplated  as  subsisting  at  the 
[same]  time,  and  as  perfectly  compatible  with  each  other.  This 
only  can  be  effected  by  giving  preference  to  each  existing  lien,  ac- 
cording to  its  due  priority  in  point  of  time.  I  know  of  no  other 
mode  whereby  the  several  conflicting  claims  can  with  justice  be  pro- 
tected and  secured. 

The  Constitution  of  the  United  States,  Article  VI,  provides: 

This  Constitution  and  laws  made  in  pursuance  thereof  shall  be  the 
supreme  law  of  the  land  in  every  State,  and  the  judges  shall  be 
bound  thereby. 

Section  8,  Article  I,  of  the  Constitution  empowers  the  Congress 
to  list  and  collect  taxes,  duties,  etc.,  which  shall  be  uniform 
throughout  the  United  States.  The  Supreme  Court  in  United 
States  V.  Snyder,  149  U.  S.  210,  at  214,  says: 

The  grant  of  the  power  and  its  limitation  are  wholly  inconsistent 
with  the  proposition  that  the  States  can  by  legislation  interfere  with 
the  assessment  of  Federal  taxes. 

In  Murrays  v.  Hoboken  Land  &  Improvement  Company,  18 
Howard,  281 : 

The  power  to  collect  and  disburse  revenue,  and  to  make  all  laws 
which  shall  be  necessary  and  proper  for  carrying  that  power  into 
effect,  includes  all  known  and  appropriate  means  of  effectually  col- 
lecting and  disbursing  that  revenue,  unless  some  such  means  should 
be  forbidden  in  some  other  part  of  the  Constitution. 

Section  3186,  R.  S.  (5908  C.  S.),  provides: 

If  any  person  liable  to  pay  any  tax  neglects  or  refuses  to  pay 
same  after  demand,  the  amount  shall  be  a  lien  in  favor  of  the  United 
States  from  the  time  it  was  due  until  paid,  with  the  interest,  pen- 
alties, .  .  .  that  may  accrue  in  addition  thereto  upon  all  property 
and  rights  to  property  belonging  to  such  person. 

The  lien,  however,  is  not  valid  against  the  judgment  creditors, 
mortgagees,  etc.,  unless  notice  is  filed  in  the  clerk's  office  of  such 


SECT.   IV.]  IlUaST  V.   LEDEUKli.  509 

county.  Neither  the  State  nor  colinty  are  judgment  creditors,  mort- 
gagees, or  purchasers,  lience  are  not  allected  by  the  provisions  of 
Bection  (5908  C.  S.)  318G  K.  S. 

The  power  of  taxation  is  an  indispensable  incident  Uj  sovereignty, 
and  by  'the  provisions  of  the  Constitution  and  laws,  a  grant  in  favor 
of  the  United  States  is  paramount  in  the  event  of  the  insolvency  of 
the  debtor.     Section  (6372  C.  S.)  34G6  R.  S.: 

Wlienever  any  person  indebted  to  tlie  United  States  is  insolvent, 
or  whenever  the  estate  of  any  deceased  debtor,  in  the  hands  of  the  ex- 
ecutors or  administrators,  "is  insufficient  to  pay  all  the  debts  due 
from  the  deceased,  the  debts  due  to  the  United  States  shall  be  first 
satisfied;  and  the  priority  hereby  established  shall  extend  as  well 
to  cases  in  which  a  debtor,  not  having  sufficient  property  to  pay  all 
his  debts,  makes  a  voluntary  assignment  thereof,  or  in  which  the 
estate  and  effects  of  an  absconding,  concealed,  or  absent  debtor  are 
attaclied  by  process  of  law,  as  to  cases  in  which  an  act  of  bankruptcy 
is  committed. 

The  Supreme  Court  in  United  States  v.  Fisher,  2  Cranch  (G  U.  S.) 
358,  Justice  Marshall  for  the  court,  said: 

This  claim  of  priority  on  the  part  of  the  United  States  will,  it  has 
been  said,  interfere  with  the  right  of  the  State  sovereignties  re- 
specting the  dignity  of  debts,  and  will  defeat  the  measures  they  have 
a  right  to  adopt  to  secure  themselves  against  delinquencies  on  the 
part  of  their  own  revenue  officers.  But  this  is  an  objection  to  the 
Constitution  itself.  The  mischief  suggested,  so  far  as  it  can  really 
happen,  is  the  necessary  consequence  of  the  supremacy  of  the  laws 
of  the  United  States  on  all  subjects  to  which  the  legislative  power  of 
Congress  extends. 

The  United  States  is  entitled  to  a  decree. 


HUEST  V.  LEDEEEI?. 
Circuit  Court  of  Appeals.     1921. 

[Reported  273  Fed.   174.] 

BuFFiNGTOX,  Cire.  J.  In  this  case,  Marriott  Hurst,  a  taxpayer, 
sued  Ephraim  Lederer,  collector  of  internal  revenue,  to  recover 
back  some  $2,000  of  taxes,  alleged  to  have  been  illegally  collected 
from  him  under  protest  and  by  duress  of  a  warrant,  distraint, 
and  threat  of  sale.  The  alleged  illegality  consisted  in  the  fact  a>- 
serted  by  Hurst  that  he  had  already  paid  the  tax  to  the  collector  by 
a  payment  thereof  made  to  one  Wright,  a  deputy  collector  of  Lederer, 
the  collector. 

On  the  trinl.  the  court  directed  a  verdict  and  judgment  in  favor 
of  Lederer  and  thereupon  Hurst  sued  out  this  writ  and  assigned  as 
error  the  direction  of  a  peremptory  verdict.  Accordingly,  the  qup>- 
tions  involved  are,  first,  whether  there  was  proof  to  go  to  the  jury 


510  HURST    V.    LEDEEEB.  [CHAP.    VII. 

on  the  issue  of  whether  Hurst  did  actually  pay  the  money  to  Wright, 
the  deputy  collector;  and,  second,  whether  the  latter  had  authority 
to  collect  the  money. 

Assuming,  for  present  purposes,  that  there  was  evidence  of  actual 
payment  to  the  deputy  collector  and  that  that  question  should  have 
been  submitted  to  the  jury,  there  yet  remains  the  underlying  and 
decisive  question  of  the  authority  of  the  deputy  collector  to  receive 
it  and  thereby  bind  Lederer,  who,  in  point  of  fact,  never  did  receive  it. 

The  proofs  in  the  case  show  that  on  the  last  day  the  taxes  were 
payable.  Hurst  telephoned  to  Lynch,  a  friend  of  his  in  the  Post 
Office  Department,  which  was  in  the  same  building  with  the  col- 
lector's office,  and  inquired  about  the  number  of  people  who  were 
then  crowding  that  office  to  pay  their  delayed  taxes.  Lynch  told 
him  it  was  large,  but  that  if  he  would  come  down,  he  (Lynch) 
would  get  him  inside  the  railings.  Hurst  came  down,  and  instead 
of  taking  a  place  with  the  people  going  up  to  the  cashier's  window 
and  paying  the  cashier.  Lynch  and  Hurst  went  inside,  where  the 
public  was  not  admitted,  and  went  to  the  desk  of  Wright,  a  deputy 
collector.  There  was  a  conflict  in  the  testimony  at  this  point  as  to 
whether  Hurst  counted  out  his  money  to  Wright  and  the  latter  took 
it  and  carried  it  away,  or  whether  Hurst  counted  it  out  to  Lynch, 
the  post-office  messenger,  who  carried  it  over  and  put  it  in  the  desk 
drawer  of  Betts,  another  deputy,  who  was  a  field  deputy  in  the 
district  where  Hurst  lived.  Hurst  testified  he  had  not  known  and 
never  saw  Wright  before  that  day.  Wright,  who  was  called  by  Hurst 
as  a  witness,  testified  he  was  a  deputy  collector ;  that  he  did  not  take 
Hurst's  money,  and  had  no  authority  to  take  it.  He  said  he  was 
taking  affidavits  and  took  Hurst's;  that  he  saw  some  money;  that 
Lynch  took  it  and  put  it  in  an  envelope ;  that  Lynch  asked  for  Betts, 
who  was  the  deputy  "in  charge  of  the  district  where  Hurst's  place 
was;"  that  he  walked  toward  Betts'  desk  when  told  where  it  was,  and 
that  he  started  toward  it  with  the  envelope  in  his  hand.  Lynch's 
testimony  was  substantially  to  the  same  effect.  He  said  he  himself 
took  the  money  and  left  it  in  Betts'  desk  drawer.  No  receipt  was 
given  by  any  one  to  Hurst  for  the  money.  No  testimony  was  adduced 
by  Hurst  as  to  the  authority  of  Wright  to  receive  the  money,  and  the 
only  statutory  authority  cited  to  the  court  was  the  act  of  March  1, 
1879    (ch.  125,  sec.   2),  printed  in  the  margin.^ 

On  the  part  of  the  defendant,  the  collector,  Lederer,  testified  that 
Betts,  the  district  deputy,  "had  the  northeast  section  of  the  city, 
in  which  Mr.  Hurst's  saloon  was  located."    He  testified  the  general 

'  That  each  collector  of  internal  revenue  shall  be  authorized  to  appoint, 
by  an  instrument  in  writing  under  his  hand,  as  many  deputies  as  he  may 
think    proper.  .   .   . 

Provided,   hoirever,  .  .   . 

Each  such  deputy  shall  have  the  like  authority  in  every  respect  to  collect 
the  taxes  levied  or  assessed  within  the  portion  of  the  district  assigfncd  to 
him  which  is  by  law  vested  in  the  collector  himself,  but  each  collector  shall, 
in  every  respect,  be  responsible,  both  to  the  United  States  and  to  individuals, 
as  the  case  may  be,  for  all  moneys  collected,  and  for  every  act  done  or 
ne{(lected  to  be  done,  by  any  of  his  deputies  while  acting  as  such. 


SECT.    IV.]  HUEST    V.    LEDEREK.  oH 

rule  of  the  ofTice  was  tliat  "money  paid  in  must  be  paid  to  tlie 
cashier";  that  on  tlie  previous  week  the  ciwhier  had  called  his  at- 
tention to  the  fact  that  parties  were  coming  to  tiie  oltice  and  trying 
to  have  the  deputies  deviate  from  tlie  order  and  he  had  made  a  posi- 
tive order  reallirming  the  ruh-. 

This  suit  being  to  recover  taxes  illegally  collected,  the  burden  of 
showing  a  previous  payment  rested  on  the  plaiutilf,  and  inasmuch 
as  the  proof  was  that  Lederer  had  never  received  the  money  and  had 
never  authorized  Wright  to  receive  it  for  him,  it  is  apparent  Hurst 
has  not  made  out  a  case  against  Lederer,  unless  the  law  itself  makes 
Lederer's  appointment  of  Wright  deputy  collector  carry  with  it  the 
right  and  authority  to  collect  money.  And  it  is  here  that,  in  liglit 
of  the  proofs,  the  plaintiff's  case  fails,  for  he  cannot  justify  his 
alleged  payment  to  Wright  by  the  terms  of  the  statute.  That 
statute  provides:  "  Each  such  deputy  shall  have  the  like  authority  in 
every  respect  to  collect  taxes  levieil  or  assessed  within  the  portion 
of  the  district  assigned  to  him  wliidi  is  by  law  vested  in  the  collector 
himself." 

But  the  proofs  show  that  Betts  was  the  deputy  to  whom  alone 
it  could  be  contended  this  language  applied,  and  that  Betts  was 
the  man  Lynch  and  Hurst  meant  to  reach.  Unfortunately,  they 
did  not  find  Betts,  and  in  his  absence  the  cashier  was  the  only  per- 
son to  whom  Hurst  could  pay  his  money,  so  as  to  bind  Lederer. 

Taking  the  most  favorable  view  of  the  plaintiff's  proofs  as  to 
what  followed,  it  is  apparent  that  Lederer  was  not  in  fault  in  any 
way,  and  that  the  loss  that  resulted  to  Hurst  arose,  not  from  any- 
thing Lederer  did,  or  failed  to  do,  but  wdiolly  from  what  Hurst  did, 
or  failed  to  do,  and,  where  one  of  two  innocent  men  suffer  wrong, 
he  must  suffer  whose  acts  or  omissions  caused  the  injury. 

We  are  of  opinion  the  record  shows  no  error  in  giving  binding 
instructions  for  the  defendant. 


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